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A municipal bond or note, with an embedded forward sale price linked to the market rate on a specific Treasury bond or note or a Constant Maturity Treasury (CMT) rate. The underlying municipal will be sold at par plus an enhanced yield if the Treasury-linked rate is below a designated level. It will be sold at a discount to par as the linked rate rises materially above current rates. Discounts to par of 30-40% are possible if rates rise sharply. Some of these bonds were involved in significant reported losses in early 1994.
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