Yields on Municipal Bonds Are Attractive But Investors Face an Array of Choices
Tax-exempt municipal bonds are one of the most attractive investments these days.</br></br>But deciding to put money in municipal securities is only a first step. Then you have to decide among a sometimes-bewildering group of investments, including mutual funds, unit investment trusts and individual bonds.</br></br>With the continuing slide in yields on money-market funds and other short-term investments, returns on longer-term municipal securities remind investors of the returns they got used to in the days of soaring inflation.</br></br>The average yield on 200 municipal bonds tracked by Kenny Information Systems, for example, is still nearly 10%. Because the interest on municipals isn't subject to federal income tax, the effective yield is even higher -- just over 16% for investors in the 38% tax bracket. By comparison, yields on long-term Treasury bonds currently are a little more than 11%.</br></br>The effective yield on a municipal is even higher if the bond is sold by a city, county or other issuer within the investor's home state, because then the interest is also exempt from state and local income taxes.