Question

1. What is a “pre-refunded” municipal bond? How does it differ from an “escrowed to maturity” municipal bond?

Answer 1

A pre refunded municipal bond is a bond that the issuer redeems before the maturity date If they are callable bonds, they may pay a lower interest as per terms of the contract. In case of non callable bonds entire interest is paid.

Escrowed to maturity municipal bond is a type of pre refunded bond. In this bond, the issuer of the bond keeps the proceeds from a new issue in an escrow account. The amount is invested in high credit securities, to be able to fund obligations of a previous issue.