A Municipal Bond is the US term for tax-exempt bond issued by states and political subdivisions (such as cities and counties) to raise funds for certain public works, such as low income houses, bridges, and roads. Municipal bonds are redeemed with interest and either backed by the full taxing power of the government (as a general obligation bond) or their repayment is based on the specific revenue generated by the financed project (as a moral obligation bond).
Related Definitions in the Project: The Bond and Insurance