Debt issued by governmental entities (such as states, cities, or school districts) where the interest income is exempt from federal income tax, and sometimes state income tax depending on the bond’s origin. These bonds carry risks such as interest rate changes, call risk, market fluctuations, and potential default. Some tax-exempt bonds may be subject to the federal alternative minimum tax. Bond prices fluctuate daily, and bonds purchased at a premium may lead to losses. Occasionally, bond interest may become taxable after purchase.