Series 51: Arbitrage Bond

Taken from our Series 51 - MSRB Municipal Fund Securities Limited Principal Qualification Exam

Definition of the term Arbitrage Bond...

a municipal bond issue that is created to get better interest rates that those on an outstanding issue. An arbitrage bond claims federal tax advantages at issue, but is found to violate federal arbitrage regulations. The interest payments on arbitrage bonds become retroactively taxable. However, the issuer and/or related parties may make payments to the IRS to avoid the having the interest payments taxed.

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