Fully Taxable Equivalent Yield

Fully Taxable Equivalent Yield

The yield on a municipal bond, when the effect of reduced taxes are taken into account. The fully taxable equivalent yield shows what yield a fully taxable bond would have to give, in order to be equivalent to a tax free municipal bond. The yield is calculated as:

Yield on a Municipal Bond
1 - Tax Rate

Investors use the fully taxable equivalent yield to determine whether they will get the same value from a municipal bond, as they would from a taxable bond. Yields on municipal bonds are generally lower than taxable bonds, so the tax implications of having the municipal bond, must outweigh the gap between the two bond types.


Investment dictionary. . 2012.

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