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.

Yield Burning

The practice of an investor deliberately attempting to raise the price of a bond in order to reduce its yield. Because the reduction of yield reduces the tax owed on the bond, yield burning is illegal.

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.
References in periodicals archive ?
The IRS, when it issued its initial proposed rules on yield burning, had projected it would collect in excess of $1 billion in charges from cities and towns who had paid too much when they refunded outstanding tax-exempt general obligation and revenue bonds earlier this decade to take advantage of sharp drops in interest rates.
announced today that as a result of a coordinated investigation with the United States Attorney for the Southern District of New York and the Internal Revenue Service, it has censured seven brokerage firms for engaging in the practice of yield burning.
The SEC's Chairman hailed the settlement as a milestone in the federal effort to combat yield burning "in a way that protects innocent municipalities and bondholders," adding that "a dark cloud has been lifted from the municipal securities market.
The agencies claim that yield burning occurs when the underwriters charge inflated prices on these bonds, artificially lowering or "burning down the yield," generating inflated profits on sales of these Treasury securities to the city or town.
announced today that it has censured seven brokerage firms for engaging in the practice of yield burning.
Collier County, Florida, is the named plaintiff on a yield burning class-action suit.
Often the yield burning rooked the city and its taxpayers.
Since the summer of 1996, state and local government issuers have faced the prospect of being compelled to enter into closing agreements with the Internal Revenue Service (IRS) to protect the tax-exempt status of advance refundings because of possible overpricing by bond underwriters - yield burning - in connection with the investment of the advance refunding bond escrows.
Schwartz was referring to the federal government's landmark, global settlement to protect cities and their municipal bondholders in a major yield burning case.
In what could be a major breakthrough for cities and towns, the federal government last week reached a global settlement to protect cities and their municipal bondholders in a major yield burning case.
The overpricing of open-market investments purchased for tax-exempt advance refunding bond escrows is commonly referred to as yield burning.
That authority is part of what is at issue in the yield burning cases involving billions of dollars of outstanding municipal tax-exempt bonds and IRS threats to declare those bonds taxable.