MW A 10% risk-free yield? For some, yes.

A previous version of this article misstated the tax treatment of Treasury bonds. They are taxed only at the federal level. By Brett Arends

This could be a bargain, especially for very high earners and those in high-tax locations

Muni bonds are on sale and can shelter income in high-tax locations like New York City, where high earners pay federal, state and city taxes

Low-risk municipal bonds are now yielding as high as 5% tax-free, thanks to the recent turmoil in the bond market.

Those could be a bargain, especially for very high earners and those in high-tax locations like New York City and California. But advisers warn these bargains aren't always as simple as they might seem. As usual, you need to do the math.

"I love municipal bonds, and they're 'on sale,' which is a rarity," says Michael McMeans, a financial planner with Silverling Financial in Columbus, Ohio. "Anyone making over $400,000 should be looking at them - and for the most part, they're not. Huge value."

Joon Um, a financial planner with Secure Tax & Accounting in Beverly Hills, Calif., says: "For high earners in places like New York City, munis can look very attractive right now. ... A 5% to 6% tax-free yield could potentially equal 10%-plus on a taxable-equivalent basis."

But, he adds: "I wouldn't chase the tax benefit alone. Credit quality, duration and liquidity still matter. For high-net-worth clients, I think munis can make a lot of sense when they fit the overall tax and investment strategy."

A "taxable-equivalent yield" is what you'd have to earn from a taxable bond, such as Treasury bonds or corporate debt, to end up with the same income after tax. Income from municipal bonds is typically exempt from federal income taxes, as well as the state and local taxes of the issuing municipality.

"It is a case-by-case and state-by-state calculation to determine whether munis are in the client's best interest," says Donald LaGrange, a financial adviser at Murphy & Sylvest in Dallas. He recently found that a prospective client in New York City could save $37,000 in total taxes on their bonds by switching to municipals. "Combined taxes were taking about 47% of her interest," he notes.

Very high earners can pay more than 50 cents on the dollar in total taxes on their top dollars of investment income. That includes 37% federal income tax, plus a 3.8% federal surtax on investment income, plus state and local taxes rising as high as 13.3% in California and 14.8% in New York City.

If you're paying 50% tax, you'd have to earn 10% on a taxable bond to end up keeping 5% after taxes.

The biggest tax benefit from municipals accrues to those with the highest incomes in the highest-tax locations - but you don't need to be a multimillionaire to benefit. A middle-class single filer in New York City, for example, could be paying a top marginal tax rate of 32% across city, state and federal taxes. For them, a 5% tax-free municipal is the equivalent of a taxable bond paying 7.4%.

That's better than investment-grade corporate bonds. The Vanguard Long-Term Corporate Bond ETF VCLT has an annual yield of 6.2%, and the iShares 10+ Year Investment Grade Corporate Bond ETF IGLB yields 6.4% (using a standardized measure from the Securities and Exchange Commission that extrapolates from the coupons of the last 30 days).

But there are several caveats with municipal bonds that investors need to understand.

To get these higher yields, you must take on some risk. That's true even if you stick to "general obligation" municipal bonds, which are backed by the full faith and credit of the state or municipality, and which usually have the lowest risk of default. To get 5% yields, you need to buy longer-term municipals - often those that don't mature for 25 or 30 years.

But those involve interest-rate and inflation risks. In practice, this means that over short periods those bonds can be very volatile in price (as we are seeing now), especially when the Federal Reserve raises short-term rates.

"Be sure you understand the volatility associated with longer-duration bonds before investing," says financial planner Edward Mahaffy of ClientFirst Wealth, Legacy & Estate Planning in Fort Worth, Texas. "Long-duration bonds tend to pay the highest yields and can be enticing, but they come with greater interest-rate risk."

It also means that over long terms, particularly the full life of the bond, you are taking on inflation risk.

If inflation averages 2% a year over the next 30 years, consumer prices will rise 81%. If it averages 3%, they'll rise 142%. This will make an enormous difference to the actual purchasing-power returns of anyone buying a 30-year bond with fixed 5% interest rates.

Kevin Brady of Wealthspire Advisors in New York City says he's mostly sticking to shorter- and intermediate-length munis. "We target a duration between four to five years," he says. "You can get yields in or close to the 4% range at that duration, which on a tax-equivalent basis would be about 8% or so."

But financial planner Matthew Chancey, founder of Tax Alpha Companies in Tampa, Fla., is a skeptic. "Here's the trick behind 'taxable-equivalent yield': The bond really pays you about 5%. The other 5% is make-believe," he says. "It's the tax you didn't have to pay, dressed up to look like money you earned."

He thinks high-net-worth individuals may be better off looking at investing in areas such as in real estate, where the federal tax code offers generous tax breaks. "In that world, nobody asks, 'How do I earn less so I'm taxed less?'" he notes. "They ask, 'How do I keep all the income, and change what the taxman calls it?' The tax code actually lets you do that."

You need to be wealthy to take advantage, he adds, but most of those paying 50% marginal tax rates already qualify.

Many advisers point out that the tax break on muni bonds needs to be viewed in the broader context of your overall financial picture and your plans. Taxes are only one factor.

And there are a few extra caveats. One is that some municipal bonds may trigger the alternative minimum tax at the federal level. The other is that municipals only make sense in taxable investment accounts. You may be able to improve your after-tax returns by contributing more to tax-sheltered accounts, such as your 401(k) or IRA, and investing in taxable bonds or stocks.

Right now, 30-year Treasury bonds BX:TMUBMUSD30Y are paying 5.5%, and the income is taxed at the federal level. Meanwhile, many long-term munis are paying 5%. So mathematically, the munis will produce better returns after tax, unless the marginal tax rate on top incomes falls to 9% or below.

Here's a simple call: That's not going to happen.

-Brett Arends