Bond Anticipation Note - Explained
What is a Bond Anticipation Note?
Written by Jason Gordon
Updated at April 17th, 2022
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Table of Contents
What is a Bond Anticipation Note?How Does a Bond Anticipation Note Work?Academic Research on Bond Anticipation NoteWhat is a Bond Anticipation Note?
A Bond Anticipation Note (BAN) refers to a security that is funded through the sale of long-term bonds. Bond Anticipation Notes are issued in expectation of larger future bond issues. They are short-term interest-bearing securities whose proceeds is dependent on the issuance of larger future bonds. BANs are also referred to as municipal bonds because they provide financing or funding for public projects (municipal projects). Governments, local municipalities, corporations or establishments that seek to generate funds for upcoming projects, usually public projects make use on bond anticipation notes. These types of bonds generate funds through the sale of larger but long-term securities.
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How Does a Bond Anticipation Note Work?
Bond anticipation notes (BAN) are notes issued in anticipation of the issuance of larger bonds in the future. Funds generated from these bonds are used for financing public or upcoming projects. A note is a promissory debt instrument loaned by one party to another party to generate funds in a short period of time. Notes yield interest and the interest rate and repayment agreement made between the lender and the borrower are included in the note. Although, some notes might take longer time to mature, the maturity period for most notes is often less than a year. Corporations and governments issue notes to cater for urgent financial needs. An example of this type of notes is a Bond Anticipation Note (BAN). A bond anticipation note is also regarded as a municipal note or issue that burrows in expectation of a future long-term bond issue. BANs are short-term debt securities that are interest-bearing but these securities are secured by larger and future long-term bonds. Corporations or government authorities that want to urgently finance a new project or an upcoming event issue BANs. The maturity period of BANs are often less than a year, they are considered as securities with lower risks. Government or corporations can issue BANs directly or use intermediaries such as banks, brokers and other financial institutions.