Watch for different risk levels of "muni" bonds

Are you thinking of investing in municipal bonds? If so, you may have good reason, particularly if you are in one of the higher tax brackets. After all, municipal bond interest payments typically are exempt from federal income taxes, and possibly state and local income taxes, too — although some “munis” are subject to the alternative minimum tax. However, since not all municipal bonds are the same, you’ll want to know the differences — especially in terms of risk.

Municipal bonds, like corporate bonds, essentially face two types of risk: interest rate risk and default risk. Intere...