What is a common characteristic of municipal bonds?

Municipal bonds are typically issued by states, cities, or other local government entities to fund public projects. One common characteristic of many municipal bonds is the presence of a call provision. This feature allows the issuer to redeem the bonds before their maturity date, usually at a specified price. This can be beneficial to issuers if market interest rates decline, as they can refinance the debt at a lower rate.

The call provision offers additional flexibility to issuers, but it can introduce reinvestment risk for investors because if the bonds are called, they may have to reinvest the proceeds at lower interest rates.

While some municipal bonds do provide monthly interest payments, this is not a universal characteristic, as many pay interest semi-annually. Additionally, municipal bonds are not typically issued in denominations starting at $1,000; they can have various minimum denominations depending on the particular bond issue. Lastly, municipal bonds are specifically issued by government entities and not corporate entities, making that option incorrect. Thus, identifying the call provision as a common feature of municipal bonds highlights a significant aspect of their structure and characteristics.