Prerefunded Bonds

This video discusses prerefunded bonds, which are a type of municipal bond that is backed by U.S. Treasury securities. The video provides a comprehensive example to illustrate how bonds become prerefunded: an issuer, wanting to take advantage of lower interest rates, refinances by issuing a second set of bonds at the lower market rate and then uses the proceeds to back the original bond issuance (which are now "prerefunded"). When the prerefunded bonds become callable, the issuer repurchases them from investors.
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[@thariqmoh]

Why would a person go and invest in 3% bond (which is rated less than AAA), instead of AAA rated bond which pay higher interest than 3%?

[@andresantonsson2255]

Obviously any specific situation depends on the numbers but if a bond is selling below market coupon and has a worse credit rating than a different bond it should be selling at a pretty deep discount such that the yield to maturity of the two bonds are similar. Thus if a trader believes the credit of a company to be better than they’re rated at the equivalent ytm of that bond to a higher rated bond makes it more desirable

[@sharwarikadam2727]

Exactly my point

[@tedyweber6303]

can you explain pre-refunded bonds backed by AID (Israel Aid bonds)? thx!

[@muhammedfaizan4278]

When the interest rates are low and we know treasury bond offer lower coupons compared to other bond how the issuer compensate the lower coupon rate of treasury bond to pay off bond A obligations which is 5.5% till it matures ?

[@ThinWaistedPrimaDonna]

Although interest rates are lower 2024, couldn’t the rate increase again to or above the original 5.5% during that 5 year period before 2029? If so, would they just hold off on calling the bonds? What happens to the securities purchased with the intention of buying the old 5.5% bonds upon maturity in 2029? Answer: They would/could be sold at a loss