2.4.7 Investments

The investment of proceeds and other monies relating to a debt issue is typically governed by state law and by the indenture, trust agreement, or bond resolution. The documents may prescribe the types of investments that may be acquired and the maximum maturity of investments of certain funds. As a guiding principle, bond related funds may not be invested with a maturity date later than the date on which funds are expected to be needed. Even funds that are not expected to be used on any particular date, such as funds held in a debt service reserve fund, may be limited in term to avoid a risk of significant loss in market value if the investment is liquidated. Investment agreements with highly rated providers that allow for funds to be withdrawn at par when needed for bond purposes may allow access to longer term yields. Chapter 9, Investment of Bond Funds discusses the investment of debt related funds more fully.