Yield burning is an illegal practice used by some bond underwriters. It involves artificially increasing the price of bonds to lower their yield. When the price is marked up, the yield decreases, which is referred to as "burning the yield." This practice can mislead investors about the true value and return of the bonds they are purchasing.
Yield burning is primarily relevant in the field of securities law, particularly in the context of bond transactions. It can also intersect with regulations governing financial practices and investor protection. Legal professionals may encounter this term when dealing with cases of fraud or misconduct in the bond market. Users may benefit from legal templates that help navigate issues related to bond transactions and compliance with securities regulations.
Here are a couple of examples of abatement:
Example 1: A bond underwriter sells municipal bonds to investors at inflated prices. As a result, the yield on these bonds is significantly lower than what it should be, misleading the investors about their potential returns. (hypothetical example)
Example 2: An investment firm is found to have engaged in yield burning by marking up the price of corporate bonds, leading to regulatory action and penalties. (hypothetical example)
| Term | Definition | Key Differences |
|---|---|---|
| Yield burning | Illegal markup of bond prices to reduce yield. | Specifically involves fraud in bond pricing. |
| Yield spread | The difference between yields of different bonds. | Not necessarily illegal; reflects market conditions. |
| Bond markup | Increasing the price of a bond above its face value. | May be legal if disclosed; yield burning is not. |
If you suspect yield burning has occurred in your bond transactions, it is essential to document your findings and seek legal advice. You may want to explore US Legal Forms for templates that can help you address issues related to bond transactions. If the situation is complex, consider consulting a legal professional for tailored guidance.
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Yield burning is the illegal practice of marking up bond prices to lower their yield, misleading investors.