Merrill Lynch & Co. has developed a new derivative that lets investors lock in current ratios between taxable and tax-exempt debt, using the company's triple-A rated derivatives subsidiary to ease credit quality concerns.

The product is designed to meet a dilemma facing investors in the current interest rate climate: Just as bond buyers are considering increasing their holdings of municipals because of attractive ratios to taxable debt, interest rates are threatening to reverse course and creep upward.

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