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.

RELATED TERMS
  1. Bond Yield

    The amount of return an investor will realize on a bond. Several ...
  2. Yield Pickup

    The additional interest rate an investor receives when selling ...
  3. Required Yield

    The return a bond must offer in order to be a worthwhile investment. ...
  4. Tax-Equivalent Yield

    The pretax yield that a taxable bond needs to possess for its ...
  5. Negative Bond Yield

    A negative bond yield is an unusual situation in which issuers ...
  6. Burn Rate

    The rate at which a new company uses up its venture capital to ...
Related Articles
  1. Investing

    Understanding the Different Types of Bond Yields

    Any investor, private or institutional, should be aware of the diverse types and calculations of bond yields before an actual investment.
  2. Active Trading

    Finding The Best Yields

    Using yields to supplement earnings can mean big bucks, with the right strategy.
  3. Markets

    Burn Rate Key Factor In Company's Sustainability

    Be careful around companies with high cash burn rates. These investments can turn to ashes.
  4. Bonds & Fixed Income

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  5. Bonds & Fixed Income

    Bond Yields: Current Yield And YTM

    A bond's current yield, also called "bond yield," is the interest it pays annually divided by the bond's price. A stock's current yield, also called "dividend yield," is the sum of its annual ...
  6. Bonds & Fixed Income

    Calculating Yield to Worst

    Yield to worst is the lowest possible yield on a bond that may be called in the future.
  7. Products and Investments

    Why is the Bond Market So Risky?

    Investors who wish to buy bonds need to understand the risks they face in the market for the foreseeable future.
  8. Bonds & Fixed Income

    Understanding Interest Rates, Inflation And Bonds

    Get to know the relationships that determine a bond's price and its payout.
  9. Bonds & Fixed Income

    Basics Of Federal Bond Issues

    Treasuries are considered the safest investments, but they should still be analyzed when issued.
  10. Bonds & Fixed Income

    Simple Math for Fixed-Coupon Corporate Bonds

    A guide to help to understand the simple math behind fixed-coupon corporate bonds.
RELATED FAQS
  1. What is the difference between the yield of stock and the yield of a bond?

    Explore and understand the various meanings of the investment term "yield" as it is applied to equity investments and bond ... Read Answer >>
  2. Why does an investor need to look at the burn rate of companies in the internet sector?

    Understand why an investor needs to look at the burn rate of companies in the Internet sector. Learn what a burn rate is ... Read Answer >>
  3. Can I use the current yield to compare a bond to an equity investment?

    Learn about the different types of yield measurements for stocks and bonds, and find out how to make careful comparisons ... Read Answer >>
  4. What causes a bond's price to rise?

    Learn about factors that influence the price of a bond, such as interest rate changes, credit rating, yield and overall market ... Read Answer >>
  5. What is the relationship between the current yield and risk?

    Discover the relationship between a bond’s current yield and risk, and how investors can use it to benefit their overall ... Read Answer >>
  6. Can a bond have a negative yield?

    The return a bond provides to an investor is measured by its yield, which is quoted as a percentage. Current yield is a commonly ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center