Municipal bonds are debt securities issued by local or state governments to finance public projects, such as building schools, highways, or hospitals. When investors buy these bonds, they are essentially lending money to the government in exchange for periodic interest payments and the return of the bond's face value at maturity. One of the main advantages of municipal bonds is that the interest earned is often exempt from federal income tax, and sometimes state and local taxes as well. This makes them an attractive investment option for individuals looking to earn tax-free income while supporting community development.