Investopedia

Refunding Escrow Deposits - REDs

Filed Under » ,
Dictionary Says

Definition of 'Refunding Escrow Deposits - REDs'

A type of forward financial contract that creates an obligation for its investors to purchase a particular bond issue at a specified yield at some date in the future. The money from investors is held in escrow and is used to purchase interest-bearing U.S. Treasuries, which are either sold or allowed to mature, providing proceeds to be invested into the new bond issue with an interest rate that is locked in with a forward contract.

Investors participate early in the new bond issue (typically municipal bond) but will temporarily receive taxable income from the Treasury held in escrow.

Investopedia Says

Investopedia explains 'Refunding Escrow Deposits - REDs'

The issuance of REDs allows investors and underwriters to circumvent restrictions in the tax code that don't allow for certain municipal bond issues to be pre-refunded. Pre-refunding is a common strategy for issuers of municipal debt, as minor swings in interest rates can amount to millions of dollars in saved interest.


Articles Of Interest

  1. The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  2. Avoid Tricky Tax Issues On Municipal Bonds

    Learn the rules every investor should know before buying into this "tax-free" investment.
  3. Weighing The Tax Benefits Of Municipal Securities

    Find out how to determine whether the tax exemption offered by "munis" benefits you.
  4. Understanding The Escrow Process

    Learn the 10 steps that lead up to closing the deal on your new home and taking possession.
  5. Why Your Pension Plan Has Sovereign Debt In It

    One type of security pensions tend to invest in is sovereign debt, or debt issued by a government.
  6. 6 Popular ETF Types For Your Portfolio

    Exchange traded funds are an extremely popular diversification tool that can protect your portfolio during troubled periods.
  7. Top 5 Budgeting Questions Answered

    You don't need a degree to understand your money, begin saving and pay down debt.
  8. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  9. Asset Allocation: The First Step Toward Profit

    Understanding the different asset classes is an essential part of portfolio diversification.
  10. Hedging With ETFs: A Cost-Effective Alternative

    The benefits of ETFs for hedging are clear and investors of all sizes are taking notice.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.
  2. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.
  3. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.
  4. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.
  5. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.
  6. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
Trading Center