What are municipal bonds?
Municipal bonds (“muni bonds”) are debt securities issued by state and local governments, or their authorized agencies, to borrow or raise money for public purposes such as building schools, highways, or hospitals. When you purchase a municipal bond, you lend money to the "issuer" (i.e., the government entity that issued the bond), which, in turn, pays a set amount of interest while you hold the bond and returns your principal investment on a specified maturity date.
What is the role of credit rating agencies?
Credit rating agencies assign credit ratings based on their analysis of an issuer’s ability to make interest payments and repay principal in a timely manner.
Bonds rated BBB or Baa, or better, are characterized as “investment grade,” meaning that they have a high probability of being repaid and have few speculative features.