Yield Burning


DEFINITION of 'Yield Burning'

The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.

BREAKING DOWN 'Yield Burning'

Yield burning is attempted in order to reduce the amount of tax that is incurred on fixed-income investments. However, this practice violates federal tax laws. It is not legally possible for an investor to earn a given yield on a fixed-income investment and use yield-burning activities to evade the full extent of the tax obligations incurred on that investment.

  1. Yield To Maturity (YTM)

    The total return anticipated on a bond if the bond is held until ...
  2. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Effective Yield

    The yield of a bond, assuming that you reinvest the coupon (interest ...
  5. Yield

    The income return on an investment. This refers to the interest ...
  6. Maturity

    The period of time for which a financial instrument remains outstanding. ...
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