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Many bond investors looking for great bonds to buy look at the bond interest rates. Municipal bonds are no exception. People looking to invest in municipal bonds usually consider municipal bond rates first. However, most of the time municipal bond rates are not as important as one might think. There are many other factors that are far more important and should be considered before considering municipal bond rates.

The term municipal bond rates refer to the coupon rates of municipal bonds. Coupon rates or interest rates are fixed rates set at the time of the municipal bond offerings. The issuer and their underwriters set the municipal bond rates to reflect the financial needs of the issuer and take into account many factors such as the market condition for municipal bonds. Although municipal bond rates are published in financial papers, it is best to look at other factors when investing in municipal bonds.

Municipal bond rates do not always change to reflect the risk associated with the bonds. Different bonds have different characteristics such as maturity dates, interest rates as well as prices. It is common sense to assume that municipal bonds with higher risks should have higher interest rates but this is no always the case. There are plenty of municipal bonds that have different characteristics such as longer maturity dates and higher prices that have the same interest rates.

While the municipal bond rates may stay the same for all maturity dates, the yield of the municipal bond should be different. This is why advanced municipal bond investors look at municipal bond yield more than their interest rates. The yield calculation takes into account factors such as the maturity date and price, unlike the coupon rates.

There is more than one type of yield for municipal bonds. Different types of yields can be used to compare municipal bonds. While municipal bond rates cannot be used to compare municipal bonds, municipal bond yields can. Sometimes, municipal bonds with higher rates have also higher yields but not always. The price of the bond as well as time to maturity are can be very important factors to consider.

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