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I never gave it much thought, but maybe the market does have it priced correctly when considering taxes. If you're buying a boatload of bonds, and maturity is far enough out, and your in the high tax bracket, one might make out better by buying discounted bonds, reporting that last bit of income as a capital gain instead of interest.
Of course if one bought the bonds at a premium, one would have a capital loss. But I'm no tax attorney and I'm not in the high bracket, so I don't know how that would work out.
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