Glossary of Municipal Securities Terms

CUSHION BOND

bond trading with a coupon rate higher than the then prevailing coupon rates, and therefore trading at a higher dollar price. Such bonds are typically priced to the call and create a substantially higher yield to maturity as compared to yield to call. The bond “cushions” because the dollar value of one basis point (.01) priced to the call is less than if priced to maturity; therefore, the volatility is reduced. See: KICKER BOND.

 

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