Municipal bonds are preferred by investors over corporate bonds when they offer yields above 4.75%.
The tax-exempt equivalent of a municipal bond is calculated by multiplying the bond yield by one, less the taxpayer's state and tax amount of 6.50% × (1 - 35%).
Municipal Bond Equivalent Yield of 4.75%.
Municipal bonds should offer a higher yield than the 4.75% equivalent yield, as investors prefer them over corporate bonds.
In short, such municipal bonds fund specific projects or operations by local governments, counties, or regions, as opposed to bonds issued by the Treasury, which are backed by full faith in the national currency.
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