arbitrage bond

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.

arbitrage bond

A municipal bond issued for the purpose of investing the proceeds in securities with higher yields than those paid by the municipal bond. Generally, the arbitrage involves purchasing U.S. Treasury bonds that are used to prerefund an outstanding issue prior to the outstanding issue's call date.
References in periodicals archive ?
Income earned on an arbitrage bond is not exempt from tax.
A bond may also be classified as an arbitrage bond if the issuer intentionally uses any portion of the proceeds of the issue f or these purposes.
Code Section 148(a) defines an arbitrage bond as "any bond issued as part of an issue a portion of the proceeds of which are reasonably expected .
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.
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.
The 1967 transaction created separate and distinct rights and obligations for the city and the state that argue against the bonds being treated as pension arbitrage bonds.
The IRS responded, saying the bonds would be arbitrage bonds and therefore taxable.
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.
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.
Topics include LGIPs, arbitrage bonds, qualified tuition plans and the regulation of political contributions.