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Saturday, September 05, 2009

Current Taxable Equivalent Yield for Municipal Bonds

With US Treasury rates (US Treasury Rates as of Sept 5) so low, investors often look to municipal bonds for higher yield.
TermCurrent
Yield
28% Taxable
Equivalent Yield
(note 1)
2-Year0.83%1.15%
5-Year1.86%2.58%
7-Year2.42%3.36%
10-Year3.20%4.44%
15-Year3.89%5.40%
20-Year4.21%5.85%
30-Year4.62%6.42%

Investors give up some safety because municipalities can not print money. If they go bankrupt, you can lose everything!

To get our current recommendation (pg 5 of the September issue) for municipal bonds, subscribe to The Retirement Advisor Now!

Note 1: “Taxable equivalent yield” is the “tax-free rate” divided by “one minus your federal tax bracket.” For example, if you are in the 28% tax bracket and can get a AAA rated GO bond paying 3.20% this is equivalent to getting 4.44% in a fully taxable AAA rated bond. [ 3.20% / (1 – 0.28) = 4.44% ]

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