yield burning

Yield burning

A municipal bond financing method. Underwriters in advance refundings add large markups on US Treasury bonds bought and held in escrow to compensate investors while waiting for repayment of old bonds after issuance of the new bonds. Since bond prices and yields move in opposite directions, when the bonds are marked up, they "burn down" the yield, which may violate federal tax rules and diminishes tax revenues.

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yield burning

Marking up the prices by underwriters and thereby reducing, or burning, the yields of bonds to be placed in escrow as part of a municipal bond refunding. Yield burning benefits the underwriters at the expense of their clients.