Spain was unable to borrow the maximum 3.5bn euros it wished to do - and investors ended up demanding the Spanish government pay an expensive 5% interest rate for supposedly risk-free 12-month loans (Belgium too didn't sell the maximum debt on offer).

BBC: Be scared when investors throw money at Germany

Now consider this: the Federal Reserve's quantitative easing III tactic explicitly targets the "risk free interest rate" - aiming to set it at a historic low, and thus influencing all related interest rates downwards.

BBC: Business

Banks generally will not lend funds in the money market at an interest rate lower than the rate they can earn risk-free at the Federal Reserve.

WSJ: Bernanke Op-ed in WSJ: The Fed��s Exit Strategy

There are many other potential problems associated with municipal bonds, including interest rate risk, and although they are federally tax-free, other state and local taxes may apply and interest income may be subject to the alternative minimum tax.

FORBES: Muni Bonds: Panacea or Pandora's Box?