After-tax basis

After-tax basis

The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

After-Tax Basis

A comparison of net yield between taxable and tax-exempt bonds, especially corporate bonds and tax-free municipal bonds. A corporate bond yields less than its stated interest rate because of taxation, whereas a tax-exempt municipal bond does not. Thus, a municipal bond paying a lower interest rate will often net the bondholder more than a corporate bond with a slightly higher interest rate, depending upon one's tax bracket. See also: Municipals-over-bonds spread.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved