Section 137 Bond CRO: A Comprehensive Guide

Investing in bonds can be a lucrative venture, especially when you delve into the intricacies of specific bond types. One such bond that has gained attention is the Section 137 bond, often referred to as a CRO bond. In this article, we will explore the various dimensions of Section 137 bond CRO, providing you with a detailed understanding of its characteristics, benefits, risks, and how it compares to other bond types.

Understanding Section 137 Bond CRO

The Section 137 bond, also known as a CRO bond, is a type of municipal bond issued under Section 137 of the Internal Revenue Code. These bonds are designed to finance the construction or improvement of certain types of public facilities, such as hospitals, airports, and public utilities. The primary advantage of these bonds is that they offer tax-exempt interest to investors, making them an attractive option for those seeking income in a tax-efficient manner.

Characteristics of Section 137 Bond CRO

Here are some key characteristics of Section 137 bond CRO:

Issuer: These bonds are typically issued by state and local governments, as well as certain non-profit organizations.
Interest Rate: The interest rate on Section 137 bond CRO is generally lower than that of taxable bonds, making them an attractive option for investors seeking higher yields.
Maturity: These bonds have varying maturities, ranging from a few years to as long as 30 years.
Rating: Section 137 bond CRO are often rated by credit rating agencies, providing investors with an indication of their creditworthiness.

Benefits of Section 137 Bond CRO

Investing in Section 137 bond CRO offers several benefits:

Tax-Exempt Interest: As mentioned earlier, these bonds provide tax-exempt interest to investors, which can be particularly beneficial for those in higher tax brackets.
Income Stability: These bonds typically offer fixed interest payments, providing investors with a stable income stream.
Credit Risk: Section 137 bond CRO are generally considered to have lower credit risk compared to other types of bonds, as they are backed by the full faith and credit of the issuing entity.

Risks Associated with Section 137 Bond CRO

While Section 137 bond CRO offer several benefits, they also come with certain risks:

Interest Rate Risk: As with all bonds, Section 137 bond CRO are subject to interest rate risk. If interest rates rise, the value of these bonds may decline.
Liquidity Risk: These bonds may not be as liquid as other types of bonds, which can make it difficult to sell them at a fair price.
Credit Risk: Although generally lower, there is still a risk that the issuer may default on its obligations, resulting in a loss of principal.

Comparison with Other Bond Types

When considering Section 137 bond CRO, it’s important to compare them with other bond types to understand their relative advantages and disadvantages: