Prerefunded bond

Refunded bond.

Refunded Bond

A bond whose principal is held in an escrow account, generally invested in Treasury securities or something else risk-free, until such time as the bond matures. That means that there is no possibility of default on the principal; as a result, refunded bonds usually have the highest possible credit ratings. They are also called prerefunded bonds.

prerefunded bond

A bond secured by an escrow fund of U.S. government obligations that is sufficient to pay off the entire issue of refunded bonds at maturity. The rating of the refunded bond generally assumes the rating of the government obligations (highest rating) at the time the fund is established. See also arbitrage bond.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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Insured or prerefunded bonds also limit credit risk.

Credit risk can be reduced by avoiding unrated bonds, by investing in insured or prerefunded bonds or by diversifying purchases across several issuers.

Tax aspects of municipal bonds

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