State and Local Governments
One of the major issuers of high yield tax-free bonds is state and local governments. These governments raise funds by issuing municipal bonds. Municipal bonds are debt securities that are issued to finance public infrastructure projects. Investors who buy these bonds lend money to the government and receive periodic interest payments. The interest income earned from municipal bonds is exempt from federal taxes and in many cases, state and local taxes as well. State and local governments issue high yield tax-free bonds to attract investors and finance various projects such as schools, hospitals, roads, and water treatment facilities. Investing in these bonds allows individuals to support development in their communities while earning tax-free income.
Government Agencies
Apart from state and local governments, government agencies also issue high yield tax-free bonds. These agencies include entities such as housing authorities, transportation authorities, and urban development authorities. They issue tax-free bonds to fund specific projects within their respective domains. For example, a housing authority may issue tax-free bonds to finance affordable housing initiatives. Investors who purchase these bonds receive interest payments that are not subject to federal income taxes. Government agencies issue high yield tax-free bonds as a way to raise capital and promote economic growth in their areas of operation.
Corporations
In addition to governments and government agencies, corporations are another source of high yield tax-free bonds. Corporations issue tax-free bonds to finance their operations or specific projects. These bonds are often referred to as industrial revenue bonds or utility revenue bonds. Investors who invest in these bonds receive tax-exempt interest income. Corporations issue high yield tax-free bonds to raise funds and take advantage of the tax benefits offered by the bond market. These bonds provide an attractive investment option for investors looking for tax-free income with higher yields compared to other fixed-income securities.
Financial Institutions
Financial institutions such as banks and credit unions also play a role in issuing high yield tax-free bonds. They may issue tax-free bonds to support community development initiatives or raise funds for their operations. These bonds are often targeted towards local investors who are looking for tax advantages and stable returns. Investors who purchase these bonds receive interest payments that are exempt from federal income taxes. Financial institutions issue high yield tax-free bonds as a way to diversify their funding sources and attract investors seeking tax-exempt income.