A dollar bond is a type of municipal bond that is not based on a percentage, but rather, is quoted based on a certain dollar price.
Municipal bonds, which are also known as munis, are bonds that are issued by local governments, such as cities. These may also be issued by special districts, public airports, school districts, and the like. These may also be associated with various state projects that aim to deliver some kind of benefit to the general public.
Some investors may prefer to invest in municipal bonds, because municipal districts or cities do not usually go bankrupt. This therefore provides investors with a certain level of security. Earnings from municipal bonds may also be exempt from federal tax, and even other types of tax. This happens when the local government, in an attempt to encourage investment, makes this non-taxable. It can result in lower yields, but nonetheless present a secure and attractive investment.
Dollar bonds, in particular, are common and are usually issued on a regular basis. Unlike other kinds of bonds, which are traded based on yields to maturity, trading for dollar bonds is based on the dollar price.
The term “dollar bond” is also used to describe a kind of bond that has been quoted and traded in U.S. dollars. This may be issued outside the United States. It may also be issued by a foreign company inside the United States.
Under both contexts, the primary factor to consider is the trading of the bond with the use of the dollar price. Many investors find this method to be simpler and more straightforward. As such, estimates for potential earnings can also be made more easily and in concrete terms.