Pre-Funded Bond

AAA

DEFINITION of 'Pre-Funded Bond'

Bonds issued by a government agency that purchases U.S. government securities to pledge as collateral for the bond issue. Pre-funded bonds are issued by municipalities that wish to attain a higher credit rating for their debt. Since state-issued bonds are not pledged by the full faith of the U.S government, the underlying collateral minimizes the risk of default. The pre-funded bond and the U.S. securities tend to have the same maturity.

INVESTOPEDIA EXPLAINS 'Pre-Funded Bond'

Pre-funded bonds provide the tax advantages present in regular municipal bonds, but are exposed to less risks. The federal government-based collateral reduces the potential for the issuer's credit to deteriorate.

RELATED TERMS
  1. Bond Ratio

    A financial ratio that expresses the leverage of a bond issuer. ...
  2. Default Risk

    The event in which companies or individuals will be unable to ...
  3. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  4. Revenue Bond

    A municipal bond supported by the revenue from a specific project, ...
  5. Credit Quality

    One of the principal criteria for judging the investment quality ...
  6. American Municipal Bond Assurance ...

    The first municipal bond insurance company, formed in 1971 as ...
Related Articles
  1. Six Biggest Bond Risks
    Bonds & Fixed Income

    Six Biggest Bond Risks

  2. Junk Bonds: Everything You Need To Know
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

  3. The Advantages Of Bonds
    Investing

    The Advantages Of Bonds

  4. Find The Right Bond At The Right Time
    Bonds & Fixed Income

    Find The Right Bond At The Right Time

Hot Definitions
  1. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  2. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  3. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  4. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  5. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  6. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
Trading Center