Muni Money

While Treasury yields have been falling due to increased demand, municipal bond yields have been rising. Munis' prices began to fall when hedge funds began selling these tax-exempt bonds to cover short positions. And prices kept falling because of fears about the instability of the big bond issuers.

Now, investors can find munis with higher yields than comparable Treasuries can offer. After-tax, investors might net almost twice as much from munis as from Treasuries. Munis are safe too: no state has defaulted on a general obligation bond since before the Civil War.

And consider this: closed-end municipal bond funds may offer extremely high tax-exempt yields now, especially if they borrow at short-term interest rates to buy long-term bonds.

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