Question

Is it true that U.S. Treasury security is risk free? Why is it that municipal bonds are not taxed at the federal level, but are taxable across state lines?

Why is it that U.S. Treasury bonds are not taxable at the state level?

Answer 1

No, the U.S. Treasury security is not risk free. When the interest rates fluctuate, the Treasury security value will also fluctuate; and the long-term treasury security have substantial interest rate risk

According to the general constitutional principle, the federal government is not permitted to tax the states without their consent if doing so would interfere with state government functions. As the municipal bonds are issued by local and state governments, thus are not able to be taxed by the federal government. It is applicable for US Treasury bonds also, as the US government cannot be taxed by state governments