Issuing Bonds to Grow and Develop
The U.S. bond market is the channel through which governments and corporations that need to borrow money are matched with investors who have funds to lend. Companies sell bonds in a debt offering to raise money to invest in growth or development. They often prefer to sell bonds because issuing more stock can lessen the value of shares investors already own.
Similar to an IPO, a securities firm helps set the terms and underwrites, with its own money and sometimes that of its clients, the sale by buying up the issue. The securities firm then distributes the bond to other firms for sale to the public.
Bonds offer investors a specific rate of interest for a fixed period. Governments, because they are not profit-making enterprises and therefore cannot issue stock, use bonds to raise money to finance improvements on roads, schools, hospitals, and airports.
Bond proceeds also keep governments’ daily operations running when other revenues aren’t sufficient to cover costs. Municipal bonds are especially attractive to investors for several reasons: there is a wide range of maturities available, which offer flexibility to tailor a portfolio of municipal securities to fit specific investment needs and financial plans; the investment is relatively safe; and, the interest is usually exempt from federal and state income taxes.