Bonds have been the preferred choice of many investors around the world. Bonds are debt or fixed-income securities that allow issuers to raise capital for different purposes. A bond denotes a debt from the investor to the issuer. In exchange for the debt, the issuer pays interest to the investors at regular intervals. The interest rate, maturity date, principal debt, and other details are mentioned in the bond. Bonds represent legal contracts between issuers and investors.
Bonds can be issued by diverse companies, including private and government entities. While bonds issued by the central government are popular in any country, Munis (Municipal Bonds) also exist. These bonds can help investors find better opportunities in a local economy. Not to forget, it helps cities or towns to develop better infrastructure. Continue reading to understand how to invest in Munis and earn returns with the help of municipal research services.
How Expert Municipal Research Services Can Help Invest in Munis?
Asset managers, trading firms, hedge funds, and many other entities keep an eye on Munis. A brokerage firm might be required to recommend Munis to its customers. Similarly, a hedge fund might need to diversify its portfolio by investing in Munis. These entities might not have the expertise or network to identify the best investment opportunities in municipal markets. Luckily, they can search for third-party municipal research services. Third-party research firms can generate insights into local and municipal markets. They can find bonds issued for public infrastructure projects in cities and towns for investors. Investors only have to use the insights generated by the third party to make informed decisions. Here’s how third-party municipal research services help investors find better Munis:
Explore GO and RO Bonds
Third-party research firms can help find the best GO (General Obligation) and RO (Revenue Obligation) bonds. GO bonds are issued by cities and municipalities for infrastructure projects. These bonds are backed by the creditworthiness and taxing power of the local government authority. Since the government body can use taxes to pay interest, there is a guarantee of repayment. On the other hand, RO bonds are issued for public infrastructure projects likely to generate cash flow in the future. For instance, RO bonds can be issued for building bridges, highways, and other infrastructures. The revenue generated from the infrastructure is used to repay the investors. You can get your hands on profitable GO and RO bonds with the help of third-party research services.
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Enhanced Obligor Screening
Municipal research services include obligor screening, an essential step for informed decision-making. You cannot choose any local government body to invest in Munis. It is essential to analyze the creditworthiness of the government body before investing in municipal bonds. Also, public infrastructure projects in cities might be under some private entities. In such a case, obligor analysis becomes a necessity. Asset managers, hedge funds, trading firms, and other entities might not have the expertise to conduct obligor screening. These entities can partner with third parties to determine the creditworthiness of issuers in the municipal market. Choosing issuers with better credit ratings can help investors reduce the risk of default.
Improved Covenant Analysis
Some municipal bonds might contain covenants. Covenants are financial obligations for the issuer. Positive covenants indicate the actions that must be taken by the issuer throughout the tenure. For instance, the issuer might be asked to share revenue details with the investors. On the other hand, negative covenants stop the issuer from certain actions. Finance professionals might face challenges while understanding these covenants. Luckily, they can partner with a third party for extensive covenant analysis. They can also suggest the inclusion of new covenants to reduce the risk of default.
Increased Socially Responsible Investing
Investors are now more inclined towards responsible investing. You might have heard about the emergence of ESG (Environmental, Social, and Governance) investing. Munis can help invest in public infrastructure projects, which end up helping society. For instance, investors can invest in renewable energy projects to boost sustainability. Firms offering municipal research services can help investors become socially responsible. They can incorporate ESG factors into decision-making to find sustainable Munis.
Complete Risk Management
Asset managers, brokerage firms, and other entities are often troubled with risks in municipal markets. These entities deploy many professionals to detect and manage risks. Instead of hiring risk management professionals, these entities can partner with a third party. Third parties offering research services have a dedicated team of risk managers. Operational or in-house costs for risk management will automatically decrease.
In a Nutshell
Munis or Municipal Bonds can help investors earn high returns. Munis offered by government bodies come with good faith and a guarantee of repayment. You can also find bonds issued by private entities for infrastructure projects in cities or towns. Asset managers, hedge funds, and other entities can partner with reliable third parties for municipal research services.
