Long Term Perspective
The spread between the 10-year Treasury note yield and municipal bond yields is usually negative. That is, yields on Treasury securities are higher than on municipal bonds because the interest on muni-bonds is free from federal income taxes and the yield represents a tax-free yield rather than a taxable yield as it does for Treasuries and other corporate bonds. The reduced supply of 30-year Treasury bonds beginning in 2000 led to a sharp reversal in the normal trend. (June yields are not yet available; thus we can't update Q2 figures for the municipal bonds.)

Short Term Perspective
Yields on municipal bonds came down in 2000. However, the drop in these yields was minor relative to the decline in Treasury yields. As a result, the average spread between the 10-year Treasury note and the municipal bond of various risk categories narrowed significantly and actually turned positive in 2000 and 2001. The spread is usually negative by a significant margin, but the reduced supply of 30-year bonds coupled with an increased demand for the new 10-year Treasury benchmark led to a reversal in the normal trend. In fact, the yield on the Baa-rated muni-bond is much higher than the yield on 10-year Treasuries, and even the A bond is higher through October! November data is not yet available for municipal bonds.