Yield Reduction Payments
Certain accounts or funds are subject to the yield restriction rules of the Regulations in addition to the rebate requirement. These accounts are included in the determination of required yield reduction payments after the expiration of certain defined temporary periods established by the Regulations and disclosed in the bond documents
In preparing the yield restriction calculation, the cash flows for the yield restricted investments must be isolated for the time period after the expiration of the temporary periods. The cash flows are then future valued to the determination date using a “materially higher bond yield,” as defined in the Regulations, to determine if the issue has violated the yield restriction rules, which would result in a yield reduction payment being due.