Subject: Bonds - Municipal Bond Terminology

Last-Revised: 7 Nov 1995
Contributed-By: Bill Rini (bill at

These definitions of municipal bond terminology are at best simplifications. They should only be used as a stepping stone, leading to further education about municipal bonds.

Act of 1911 and 1915
Used for developments within a particular district and are secured by special assessment taxes set at a fixed dollar amount for the life of the bond. 1911 Act Bonds are secured by individual parcels, while 1915 Act Bonds are secured by all properties within the district.
Ad Valorem Tax
A tax based on the value of the property
Advance Refunding
The replacement of debt prior to the original call date via the issuance of refunding bonds.
Authority (Lease Revenue)
A bond secured by the lease between the authority and another agency. The lease payments from the "city" to the agency are equal to the debt service.
Callable Bond
A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called.
Certificate of Participation (COP)
Financing whereby an investor purchases a share of the lease revenues of a program rather than the bond being secured by those revenues. Usually issued by authorities through which capital is raised and lease payments are made. The authority usually uses the proceeds to construct a facility that is leased to the municipality, releasing the municipality from restrictions on the amount of debt that they can incur.
Crossover Refunded
The revenue stream originally pledged to secure the securities being refunded continues to be used to pay debt service on the refunded securities until they mature or are called. At that time, the pledged revenues pay debt service on the refunding securities.
Discount Bond
A bond that is valued at less than its face amount.
Double Barrelled
Bonds secured by the pledge of two or more sources of repayment.
Face Value
The stated principal amount of a bond.
General Obligations
Voter approved bonds that are backed by the full faith, credit and unlimited taxing power of the issuer.
Mello Roo's
Bonds used for developments that benefit a particular district (schools, prisons, etc.) and are secured by special taxes based on the assessed value of the properties within the district. Tax assessment is included on the county tax bill.
Par Value
The face value of a bond, generally $1,000.
Premium Bond
A bond that is valued at more than its face amount.
The amount owed; the face value of a debt.
Redevelopment Agency (Tax Allocation)
Bonds secured by all of the property taxes on the increase in assessed valuation above the base, on properties in the project.
Revenue Bonds
Bonds secured by the revenues derived from a particular service provided by the issuer.
Sinking Fund
A bond with special funds set aside to retire the term bonds of a revenue issue each year according to a set schedule. Usually takes effect 15 years from date of issuance. Bonds are retired through either calls, open market purchases, or tenders.
Taxable Equivalent Yield
The taxable equivalent yield is equal to the tax free yield divided by the sum of 100 minus the current tax bracket. For example the taxable equivalent yield of a 6.50% tax free bond for someone in the 32% tax bracket would be:
6.5/(100-32) = 0.0955882 or 9.56%
A measure of the income generated by a bond. The amount of interest paid on a bond divided by the price.
Yield to Maturity
The rate of return anticipated on a bond if it is held until the maturity date.

This article is copyright 1995 by Bill Rini.

Previous article is Bonds: Moody Bond Ratings
Next article is Bonds: Relationship of Price and Interest Rate
Category is Bonds
Index of all articles