The above graph shows Taxable A rated GO yields in blue and BQ yields in green (Bloomberg BVAL).  Just looking at the chart, it’s easy to jump to the conclusion that the yield on Taxable bonds is significantly higher.  However, we must remember when comparing these two types of offerings we have to compute the Taxable Equivalent Yield on the bank qualified bond to do an “apples to apples” comparison. 

The below chart, is provided to do a general comparison between A-rated BQ and A-rated taxable bonds. Actual offerings will vary from the Bloomberg index provided as specific credits, coupons and yields will vary. However, generally it is beneficial for institutions in the 21% and 29.6% tax brackets to purchase taxable bonds within the 6MO-7YR time frame.    While investors in the 37% tax bracket would typically be better off in tax-free investments.
 

 

 

For example, an investor in the 21% and 29.6% tax brackets comparing a 5 YR A-rated taxable bond yielding 3.411% to a BQ A- rated tax free bond yielding 2.301% would chose to purchase a taxable bond.  While an investor in the 37% bracket would favor the tax-free offering.

If you are comparing a taxable and tax-free municipal please feel free to contact your CCB representative to talk through the comparison.