Debt Service Structure

New issues of municipal bonds may be structured to mature in one of two ways. Term bonds are those in which the entire issue is scheduled to reach maturity on the same date and offers a single interest rate. A city that issues a $100 million bond with a maturity of 10 years will repay the entire $100 million principal when the bond comes due. Term bonds are generally quoted in dollars or as a percentage of par (in bond points).

A serial bond is a bond issue that matures at regular intervals over a specific time period. For example, a $100 million serial bond might have $10 million due each year of the bond’s 10-year life. Serial bonds are quoted by yield.

Serial bonds, with shorter maturities than term bonds, can be more appealing to issuers because issuers can offer serial bonds at lower interest rates.