A municipal bond is a type of debt security issued by local or state governments to finance public projects, such as schools, highways, and hospitals. Investors who buy these bonds are essentially lending money to the government in exchange for periodic interest payments and the return of the bond's face value at maturity. Municipal bonds are often considered a safe investment because they are backed by the government's ability to tax or generate revenue. Additionally, the interest earned on many municipal bonds is exempt from federal income tax, and sometimes state and local taxes, making them attractive to investors looking for tax-efficient income.