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Municipal bonds that have coupons with above-market interest rates will tend to sell at a premium, i.e. above the "par value" of the bonds.

Municipal bonds are often "callable", meaning the issuer has the right to pay the bond off before scheduled maturity, by paying a stated price, which may be par or par plus a premium.

In either case, the buyer of a callable bond that's selling at a premium risks losing the value of this premium. As a result, such callable bonds sell at a smaller premium than they otherwise would. These bonds are called "cushion bonds" because they can "cushion" the potential loss in a rising interest rate market.

Topic MunicipalCushionBonds . { Edit | Ref-By | Attach | Diffs | r1.1 }
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