Final answer:
Municipal bonds often have a lower coupon rate compared to treasury bonds but tend to offer a higher after-tax return due to tax exemptions on the interest income received from these bonds.
Step-by-step explanation:
Municipal bonds tend to have a lower coupon rate than treasury bonds issued at the same time; however, municipal bonds usually offer a higher after-tax return to investors. This is because the interest income from municipal bonds is often exempt from federal income taxes, and sometimes from state and local taxes as well, depending on where the investor lives. Treasury bonds, on the other hand, are subject to federal taxes. Despite the lower coupon rate, the tax advantages can make municipal bonds more attractive to investors in certain tax brackets. When considering investment in bonds, it's essential to assess not just their coupon rates but also their after-tax yields.