Many people invest in municipal bonds for their predictable stream of income and tax benefits. If you purchase a Connecticut tax-exempt bond, your interest payments can be exempt from federal income tax and, if you are a Connecticut resident, your interest payments can also be exempt from Connecticut state income tax. The tax advantage individual investors receive from tax-exempt bonds will vary depending on income level and other factors. As always, it is important to consult with your Investment Advisor or Broker before purchasing bonds but here are some things I review with my clients:
Credit Quality – Here’s why Connecticut’s credit rating is so important
Bond credit ratings are important because they provide information on the creditworthiness of a bond issuer, meaning what is the likelihood that they will be able to repay their debt obligations on time. For example, as of this writing, Moody’s – a major rating agency – gave Connecticut State general obligation bonds a rating of Aa3 which signifies high credit quality and very low credit risk – that’s a good thing!
Revenue Bonds vs General Obligation
General Obligation Bonds can finance the construction of buildings, community care facilities, schools, state parks and open space. What I like about Connecticut General Obligation Bonds is the repayment source is the general taxing power (“full faith and credit”) of the State of Connecticut.
Special Tax Obligation Bonds finance the state’s portion of the cost of highway and bridge construction and maintenance. The repayment source is a dedicated revenue stream from the state’s motor fuels tax, motor vehicle registrations, licenses and fees. Contrast that to Revenue Bonds which finance a project or program with a pledged revenue stream, which is then used to pay debt service on the bonds.
Truth be told, I might do a mix of all the above for diversification. The yield can vary by type, so you must do your homework. However, often for my conservative clients, I lean towards Connecticut General Obligation and Special Tax Bonds.
There is much more to investing in Connecticut Municipal Bonds than room can allow in this post, but suffice it to say, if you want to learn more, reach out to me and we can review.
To schedule your complimentary consultation please use my Microsoft Bookings Page, email me at maloi@sfr1.com or call me 203.409.1270.