I'm looking right now at the yields in Municipal bonds and Treasury bonds on Bloomberg: https://www.bloomberg.com/markets/rates-bonds/government-bonds/us and I see that yields on Municipal bonds are lower than those on the corresponding maturity for the Treasury bonds. Why is that the case?

I thought that Municipal bonds were more risky than Treasury bonds and thus requiring a higher rate of return.

1 Answer 1


In a lot of situations municipal bond returns are "triple tax free." No federal or state income tax and no AMT (Alternative Minimum Tax -- which is largely irrelevant at this point) liability.

This tax preference is considered in the yields investors are willing to accept. Generally, you need to be in the upper most brackets for your real return in muni-bonds to beat your real return in treasuries of similar duration. i.e. if you're in a 10% tax bracket, then the tax savings from municipal bonds isn't as valuable as if you're in a 37% tax bracket.


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