When a government or other agency seeks to borrow funds to finance new infrastructure projects, cash flow needs or refinance outstanding bonds, it often does so by issuing municipal bonds in the capital markets. This process usually involves municipal securities dealers or banks acting as underwriters or intermediaries between the issuer and investors. The underwriter agrees to purchase all of the bonds from an issuer and then resells those bonds to investors. There are many different types of investors in the municipal securities market, ranging from individuals, banks, insurance companies, trusts, mutual funds, hedge funds, and corporations, among others.
In the municipal securities market, it is common for issuers to employ serial bonds to structure their debt. This financing technique involves the issuance of a number of different bonds that mature in consecutive years in one issue. Structuring the bonds in this way allows the issuer to repay principal over time and to make payments of principal that match revenue expectations over that time period. Although part of the same issue, each serial bond is a different security for purposes of sales and trading.
A bond with a single maturity that comprises the entire issue is sometimes called a term issue. If a large part of a serial bond issue is comprised of identical bonds with a single maturity date, the bonds with that maturity are called term bonds or a term maturity. In such issues, the term maturity normally will have a maturity date later than the last maturity of all of the serial bonds.