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Municipal Bonds and Mortgage Backed Bonds

State and local governments issue municipal bonds to finance capital projects like roads and schools, which investment bankers buy and resell to commercial banks and high-income individuals; mortgage companies group individual mortgages into securities called mortgage-backed bonds that pension funds and insurance companies buy.

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51 views1 page

Municipal Bonds and Mortgage Backed Bonds

State and local governments issue municipal bonds to finance capital projects like roads and schools, which investment bankers buy and resell to commercial banks and high-income individuals; mortgage companies group individual mortgages into securities called mortgage-backed bonds that pension funds and insurance companies buy.

Uploaded by

maryani
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Municipal Bonds 

State and local government must finance their own capital investment

projects like roads, schools, bridges, sewage plants, and airports. These

projects need financing. These local governments usually issue municipal

bonds for the purpose. New issues of municipal bonds are generally bought by

investment bankers and resold to commercial banks, insurance firms and high-

income individuals. They are not, however, as saleable as corporate bonds. 

Mortgage-backed Bonds 

Individual mortgages are non-negotiable, not liquid, nor suited to trading

in the secondary markets. As a result, mortgage companies and banks group

mortgages into a standard million block group and issued securities backed up

by these mortgages. Such securities issued came to be called mortgage-

backed securities, which are usually in the form of bonds.  

These are usually sold to pension funds or life insurance companies. The

mortgage houses or banks continue to collect the payments on the mortgages

and pass them to the owner of the security in the form of interest on the bonds

held.

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