Understanding the Premium: Why Muni Bonds Are Sold Above Par Value
Municipal bonds, commonly referred to as muni bonds, are debt securities issued by states, municipalities, or counties to finance public projects such as schools, highways, and hospitals. Investors are often drawn to these bonds due to their tax-exempt status, which can yield attractive after-tax returns. However, a significant aspect of the muni bond market that often perplexes investors is the phenomenon of these bonds being sold at a premium. In this article, we will delve into the reasons behind this pricing behavior, exploring the economic, market, and investor sentiment factors that contribute to the premium pricing of municipal bonds.