What type of bonds are considered the safest municipal bonds available?

Prerefunded bonds are considered the safest type of municipal bonds available because they are backed by a dedicated fund specifically set aside for their repayment. When a bond is prerefunded, the issuer has placed funds in an escrow account, typically invested in U.S. Treasury securities, which are highly secure. These funds are designated for the payment of interest and principal on the prerefunded bonds when they mature or are called.

The security of prerefunded bonds comes from the backing of government securities, which reduces the credit risk associated with the municipality itself. This added layer of safety makes prerefunded bonds appealing to conservative investors who prioritize preserving their capital and ensuring steady income. Essentially, the guarantees provided by U.S. Treasury securities make these bonds more reliable than other types of municipal bonds, which may carry varying degrees of risk depending on the financial health of the issuing municipality.