State and Local Financial Instruments

State and Local Financial Instruments

Policy Changes and Management

Studies in Fiscal Federalism and State–local Finance series

Craig L. Johnson, Martin J. Luby and Tima T. Moldogaziev

The ability of a nation to finance its basic infrastructure is essential to its economic well-being in the 21st century. This book covers the municipal securities market in the United States from the perspective of its primary capital financing role in a fiscal federalist system, where subnational governments are responsible for financing the nation’s essential physical infrastructure.

Chapter 7: The serial debt issue structure

Craig L. Johnson, Martin J. Luby and Tima T. Moldogaziev

Subjects: economics and finance, public finance, politics and public policy, public administration and management, public policy


The previous chapter discussed the process in which state and local governments sell municipal securities to finance their capital and operating activities. This chapter provides greater detail into the specifics and structure of those securities. Municipalities sell debt issues by combining individual bonds along the term structure into a debt issue, called a serial debt issue. Serial debt issues attract a range of investors that have varying maturity preferences. A municipal bond issue with a principal amount of $10 million consists of 2000 bonds with a principal value of $5000 each. On serial issues, a portion of the total principal of the debt issue is scheduled to mature at regular intervals over the life or term of the issue. The schedule (dates and amounts) of the principal maturities of the issue is referred to as the principal maturity schedule. Table 7.1 shows a typical maturity schedule for a serial debt issue. On a $10 million bond issue, $2 million matures annually over a five-year period, so the entire bond issue is retired five years after the date of issuance. All 2000 individual bonds, therefore, do not have the same final maturity date; they mature annually over the five-year period at roughly equal intervals (e.g. 400 bonds mature each year). The principal amount of $2 million is retired (repaid) each year for the next five years.

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