The US bond market still seems to be confused. How else to explain that tax-free municipal bond funds yield more than taxable bond funds?
VWIUX - Vanguard Intermediate Term Municipal Bond Mutual Fund (Adm) yields 3.19% non-taxable, which is equivalent to a 4.1% taxable yield if you are in the 28% federal tax bracket.
VBMFX - Vanguard Total Bond Market (Adm) yields 2.48% taxable.
They both invest in intermediate term bonds. I know that people worry about municipal bonds and the percentage of AAA bonds in the taxable bond fund is higher, but does it really justify a 65% premium after tax over the municipal bond fund? Maybe people still remember Meredith Whitney's prediction of massive municipal bond defaults in late 2010 - a universally ridiculed bad prediction. I don't know what causes this strange yield divergence, but it does make sense to consider municipal bond funds in taxable accounts.
For Canadians reading this blog, ignore the above, there are NO tax free bonds in Canada to my knowledge, this is a US-Only offer, kind of like the miracle diet pills and self-coiling-hose that get advertised late at night on sparsely watched cable TV networks.