Arbitrage bonds

Arbitrage bonds

Municipality issued bonds issued intended to gain an interest rate advantage by refunding a higher-rate bond in ahead of their call date. Lower-rate refunding issue proceeds are invested in Treasuries until the first call date of the higher-rate issue.

Arbitrage Bond

A municipal bond issued at a lower interest rate than another municipal bond. The funds from the second bond are invested in treasury securities until the call date of the first bond, when they are used to pay for the first bond's redemption. Depending on whether an arbitrage bond is also used for projects relating to municipal development, it may or may not be tax free.
References in periodicals archive ?
Code Section 103(b), however, revokes the exclusion if the bonds are determined to be either arbitrage bonds (not the subject of this article) or "any private activity bond which is not a qualified bond.
The interest exclusion for arbitrage bonds, which are bonds whose proceeds are used to acquire higher-yielding investments, was initially eliminated in 1969 [2].
Treasury, the tax-exempt bonds are so-called arbitrage bonds, and the federal tax law provides that interest earned on those bonds is not exempt.
Tax Court ruled for the city that bonds it had proposed to issue in 1993 are not arbitrage bonds as the Internal Revenue Service has argued.
The IRS responded, saying the bonds would be arbitrage bonds and therefore taxable.
148, relating to arbitrage bonds and the rebate of permissible arbitrage to the United States.
Income earned on an arbitrage bond is not exempt from tax.
Code Section 103(b), however, revokes the exclusion if the bonds are determined to be either private activity bonds (not the subject of this article) or arbitrage bonds.
These rules defined when the investment of bond proceeds in "materially higher" yielding investments would result in them becoming arbitrage bonds.
The Internal Revenue Service (IRS) characterizes such bonds as taxable arbitrage bonds because the implicit interest rate on the annuity contract is considered to exceed the yield on the bonds.
The proposed bond issue does not have the characteristics of "pension arbitrage bonds," as defined by the IRS, since the interest rate used to value Columbus' pension liability is the same as the rate paid by the city to the state (i.
Topics include LGIPs, arbitrage bonds, qualified tuition plans and the regulation of political contributions.