Question: What is the yield ratio and why is it typically less than 1?

What is the yield ratio and why is it typically less than 1?

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Because of the taxexempt feature of municipal bonds the yield on municipal bonds should be less than that on Treasuries with the same maturity Thus we should typically get a number less than one when comparing the yield on municipal bonds to the yield on Treasury bonds with the same maturity This can be seen by examining the below equation for the yield ratio yield ratio We can add that the yield ratio varies over time For example according to Bloomberg from April 282001 to August 31 2006 the yield ratio for AAA 20year general obligation bonds rangedfrom 825 on May 31 2005 to a high of 101 on June 30 2003 with an average yieldratio of 906 This while not the typical occurrence the yield ratio can sometimes exceed 1 yield on municipal bond ... View full answer

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