A debt security issued by a state, municipality or county to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if you live in the state in which the bond is issued. Also known as a "muni".

    

            

            
   
        
        

            
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|||Municipal bonds may be used to fund expenditures such as the construction of highways, bridges or schools. "Munis" are bought for their favorable tax implications, and are popular with people in high income tax brackets.