What types of investments are commonly used for tax-exempt refunding bond escrow accounts?

Tax-exempt refunding bonds are typically associated with escrow accounts that are invested in safe and secure financial instruments to ensure they can meet obligations related to the bonds. The most common investments for these escrow accounts are federally insured State and Local Government Series (SLGS) securities and open market Treasury investments.

SLGS are specifically designed for this purpose, as they provide a guarantee by the federal government, thus reducing the risk associated with the funds set aside to pay off the refunding bonds. Open market Treasury investments, which include U.S. Treasury bills, notes, and bonds, are also considered very low-risk options due to the backing of the federal government. These investments allow the issuer to maintain compliance with federal regulations and achieve a strong level of security for the funds that will be used to pay off the callable bonds.

By investing in SLGS and Treasury securities, municipalities can ensure they have reliable and safe investments that will preserve capital while earning a return that is sufficient to cover the debt service of the refunded bonds. This careful selection is essential as it protects both the investors and the financial stability of the issuing authority.