Bonds & rates
Municipal bond
Also called Munis
Debt issued by local or state government, often with tax advantages for domestic investors.
How it works
In the US, interest is typically exempt from federal income tax and sometimes from state tax, which makes the after-tax yield attractive to higher-rate taxpayers.
Comparing them to taxable bonds requires computing the tax-equivalent yield, since the headline yield understates the benefit.
Formula
Tax-equivalent yield = municipal yield ÷ (1 − marginal tax rate)Related terms
More in Bonds & rates
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.