Business and Personal Finance Dictionary

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• YIELD BURNING
  
  The IRS's name for the dealer's crime of overcharging state and local governments and authorities for Treasury securities that they use in "advanced refunding" of old, high-yielding municipal bond issues with new, low-yielding ones. Application: After interest rates decline, the tax-exempt entities issue new bonds with low coupons and use the proceeds to buy just enough Treasury bonds to cover the higher coupons on the old bonds. If the entity is able to use less than the full proceeds of the new bond issue to buy the Treasuries, thus, turning a profit, the IRS taxes this profit. If the bond dealer marks up the Treasuries above market to reduce the profit, this reduces the IRS take. "Michael Lissack, a former managing director of Smith Barney who identified the arcane and complex practice [of yield burning], originally filed the suit [against various bond dealers].
  
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