(MONEY Magazine) – If you go along with the forecast that in a year or so interest rates will be lower than they are now, think bonds: not just any bond, but zero-coupon bonds and not just any zeros but tax-exempt municipal zeros. You can buy a top-rated 30-year 7.5% muni zero with a face value of $1,000 for about $110. The bond pays no interest for those 30 years; in effect, your income is reinvested semiannually at 7.5%, giving you a compounded annual yield of 7.64%. Moreover, while all bond prices rise when interest rates fall, zero prices rise more because their built-in compounding locks in a higher rate than ordinary bonds do. If rates on 30-year munis fell to 6% over the next year, for instance, the price of a zero would rocket 64%. Rising interest, of course, would also push hard on the wrong end of the lever. For this strategy, municipals are better than corporates or Treasuries, whose unpaid interest is taxable every year. Ray Burton, fixed-income portfolio manager at the New York City institutional money-management firm of Trevor Stewart Burton & Jacobsen, prefers zero munis that are insured against default and that cannot be called in early. He gives these examples, both newly issued: Oklahoma County (Okla.) Municipal Improvement Authority 7.5%s of 2016, now selling for $110, and Dallas County (Texas) Utility and Reclamation District 7.3%s of 2016, at $130.