The major reason that municipal bonds have lower yields than corporate bonds is that, as a class, municipal debt has less marketability than corporate debt.

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The major reason that municipal bonds have lower yields than corporate bonds is that the interest income from most municipal bonds is exempt from federal income taxes, and often state and local taxes as well, making them more attractive to investors in high tax brackets despite their lower yields. This tax advantage effectively increases the bond's yield after taxes, reducing the need for municipalities to offer higher interest rates.

The Major Reason That Municipal Bonds Have Lower Yields Than