The bonds of leading foreign governments have always been considered among the world's soundest securities, and until the Great War began in 1914 commanded unusually high prices, yielding correspondingly low rates of interest. Before 1914 there were comparatively few of these bonds sold in the United States, which until that time had been a borrowing nation rather than a lending nation. Today the United States is one of the greatest lending, or creditor, nations and hundreds of millions of dollars of foreign government securities are held in this country.

The rate of interest of these foreign loans now is much more than government bonds usually pay. Some of the recent issues pay as high as 8 per cent.

U. S. Government Bonds

The interest rate of these bonds ranges from 2 to 4¾ per cent. They are issued to supply the government with funds (usually for extraordinary needs) and are payable, principal and interest, from the revenues of the government. They are secured by the simple credit of the country and are free from state and local taxes and with certain restrictions and exceptions, from federal income taxes. During the war over $ 21,000,000,000 of Liberty Bonds and Victory Notes were issued, which comprise the bulk of the United States Government obligations outstanding. United States Government bonds are recognized as the safest investment in the world.

Municipal Bonds

Broadly speaking, these are the promises-to-pay of states, counties, towns, cities, school, road and drainage districts and such other corporate bodies as have the power of general taxation to provide for the payment of the principal and interest of the bonds. Such bonds are issued for the purpose of payment for some public work or improvement, such as school or other buildings, fire departments, drainage and water systems, roads, parks, sewers, etc. Back of municipal bonds as security is the credit of the community and its power to levy taxes on all the taxable property within the municipality to meet the bond obligations. The record of such bonds is so uniformly good that they are generally considered as "next to government bonds." The names of municipal bonds may vary according to the purpose for which the bonds are issued. Thus a county may issue "court house five per cent bonds," which would indicate that the bonds were issued for the purpose of constructing a court house and that they bear five per cent interest.

There are several other classes of bonds issued by bodies more or less governmental in character which have been termed municipal bonds but which may not have the chief essentials of municipal bonds. Special assessment bonds and many irrigation bonds are of this character. Such bonds are paid from special assessments or special taxes and not from general taxes on all property. Bonds of such character must be in-vestigated with unusual care, and it is highly important that the investor be assured of the integrity of the house offering such issues payable from special taxes. . The test for a municipal bond is to ascertain whether or not it is primarily payable from taxes on all the taxable property within the municipality whose name it bears, and has been issued in full accordance with the laws of the state in which the municipality is located.

Under the rulings of the Treasury Department the income from municipal bonds issued in the United States is exempt from all Federal Income Taxes (both the normal taxes and the surtaxes). For this reason these bonds are particularly adapted to investors with large incomes.