Refunding Escrow Deposits (REDs)
Definition
A financial instrument involving a forward purchase contract that obligates investors to buy bonds at a certain rate when issued. The future date coincides with the first optional call date on an existing high-rate bond. In the interim, investors' money is invested in secondary market Treasury bonds. The Treasuries mature around the call date on the existing bonds, providing the money to buy the new issue and redeem the old one.
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Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University
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