- 1). Research registered municipal bond dealers. These dealers are listed with Municipal Securities Rulemaking Board (MSRB), an agency created by the U.S. Congress to oversee the municipal bond market. A list of eligible dealers is available at the MSRB's official website. Bonds are typically bought by these dealers first and then resold to individuals or private entities.
- 2). Choose a registered dealer that has Massachusetts bonds available. Each dealer has a bond inventory. Most of these agencies have current inventory listed on official websites, but some may require you to register first in order to view this information. Check the fees for the transaction with each dealer to determine the best deal available for the bonds you are looking to purchase.
- 3). Decide what type of bond to buy. General obligations bonds are bonds that are backed by the taxing authorities in Massachusetts. Revenue bonds are backed by a municipal service, such as city or town water companies. General obligations bonds typically carry less risk than revenue bonds because a taxing authority can use local taxes to ensure bond obligations are met. However, revenue bonds may yield a higher return.
- 4). Determine the price of the bond. All bonds must be bought in increments of a $5,000 face value. This does not always mean you will pay $5,000 for the bond. The Massachusetts bond you are buying may be less than $5,000, but is expected to have a value of $5,000 upon maturity.
- 5). Decide your maturity date. This is the date you can sell the bond for the full face value. Massachusetts bonds will be available with different lengths of time to maturity, from six months to 20 years. You can sell the bond prior to this date to a dealer, but you will not receive the expected face value.
- 6). Check the bond for call back dates. Some bonds have specified dates for when the issuer can pay off the bond before maturity. In this case, look for "YTW" (yield to worst) or "YTC" (yield to call.) This will be the profit you will make from the bond if a call back occurs. Bonds with call protection cannot be called back.
- 7). Check the interest rate, pay frequencies and ratings of the available Massachusetts bonds. This will tell you how much interest income you will get and how often. The interest rate and pay frequencies are fixed and will not change while you hold the bond. The ratings, using a letter system from AAA to D, indicate the credit worthiness of the bond issuer. The higher the grade, the lower the risk the investment is believed to be. Ratings can change due to events affecting the municipality that issued the bond.
- 8). Determine the accrued interest. When you buy a bond, you must pay the seller the amount of interest that has built up from the last pay frequency date.
- 9). Contact a broker or security agency that deals with Massachusetts municipal bonds if you are unsure about the bond process. These types of bonds are generally long-term investments, so you should be certain about all the terms of what you are buying.
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