Municipal bonds are securities in which the purchaser is lending money to the issuer of the bonds.  Municipal bonds are issued by cities, states, counties and other government entities.  The purchaser of these bonds is actually purchasing the debt of a certain government entity.  These bonds are issued to raise money for schools, highways, hospitals, and other public needs.  Tax-exempt municipal bonds are some of the most popular investments today.  They are popular because of their obvious tax benefits but also because they are safe and predictable.  However,  not all municipal bonds are not tax exempt.