There exists a relationship between the returns, or yields, on municipal bonds and U.S. Treasuries that is important to tax-exempt investors.

The relationship points out the attractiveness or unattractiveness of the tax-exempt versus the taxable Treasury, and may be viewed or referred to in three ways.

First, as a ratio of the muni yields expressed as a percentage of U.S. Treasury yields. In this instance, if the return on the muni was 7.5 percent, and the return on the Treasury was 7.25 percent, the ratio would be 103.4 percent (7.5 divided by 7.25).

The second view simply takes the same ratio and refers to it as "the yield differential." The larger the ratio, the narrower the yield differential between the two returns, and conversely, the lower the ratio, the wider the yield differential. Historically, during periods of low interest rates, the yield differential tends to narrow, while in periods of higher interest rates, the differential tends to widen.

Finally, the third view of the yield relationships is a much simpler view, with all the mathematics removed. One could easily state that the yields, or the returns, on long municipals exceed (or are less than) the yields on long governments. And this is the situation today. Ordinarily this would be a very attractive buy sign to purchasers of tax-exempts.

This relationship may be measured several ways. Either as a ratio based on the Bond Buyer's 20 Bond general obligation index or their Revenue Bond Index, or an individual issue may be utilized against a specific but similar government maturity.

During the last week in March, if we use the Revenue Bond Index against the 30-year T-bond, we would have had a ratio of 101.3 percent (7.56 divided by 7.46).

This was the first time since the fall of 1982, and the third time since the index was created in 1979, that the yield on the Bond Buyers' Revenue Bond index exceeded the yield on the 30-year T-bond. The other two times were in December of 1981, when the ratio peaked at 104.5 percent, and during the final two months of 1982, when the ratio peaked at 103.6 percent. On April 17, the ratio stood at 106 percent (7.55 divided by 7.10 percent).

Currently, the yield ratio on the 10-year AAA general obligation bond to a 10-year Treasury is 0.90 percent, on a AAA GO 20-year to a 20-year Treasury it is 0.95 percent, and 0.97 percent on similar 30 year issues. These generous ratios represent the highest levels in the past 12 months and, as such, are very attractive.

These are the main reasons for this phenomena:

First, marginal tax rates have declined significantly since 1979.

Next, recent and proposed tax legislation is making tax-exempt securities less attractive to the second-largest buyer of munis, commerical banks, and to the third-largest buyer, fire and casualty insurance companies. Consequently, in an effort to lure new buyers, especially individuals, it has required higher tax-exempt rates -- relative to taxable securities -- to attract individual buyers.Lebherz has 27 years experience in fixed-income investments.