What can happen if a municipal bond is sold prior to maturity?

When a municipal bond is sold prior to maturity, its market value can fluctuate based on several factors, including changes in interest rates, credit ratings, and overall market conditions. As a result, the bond may be worth either more or less than its original cost when sold before maturity. This fluctuation happens because the bond's pricing in the secondary market is influenced by prevailing interest rates; when rates rise, bond prices typically fall, and vice versa.

For example, if an investor purchased a municipal bond at a certain price and then interest rates increased, the bond's value might decrease if sold before maturity, leading to a potential loss. Conversely, if the interest rates fell, the bond's value could increase, resulting in a profit if sold before maturity. This variability does not guarantee a specific outcome regarding profit or loss, reflecting the inherent risks associated with trading fixed-income securities like municipal bonds in the market.