Capital appreciation bonds and the cost of borrowing

Temirlan T. Moldogaziev, Kenneth A. Kriz

Research output: Contribution to journalArticlepeer-review


A Capital Appreciation Bond (CAB) is a financial instrument that is most attractive as a resource-flow management instrument. It bridges multiple fiscal years for jurisdictions experiencing rapid growth, potentially stretching for decades, but may also be used by localities experiencing fiscal distress. Using debt issuance data by independent school districts in Texas, who utilized almost all such bonds in the state, we present empirical evidence that CABs are associated with both the service and fiscal pressure factors. We further observe that, though the threat from CABs in terms of borrowing costs may have been exaggerated, enacting limits on debt repayment ratios (ratio of payment size at maturity to premium size) was likely the right legislative intervention.

Original languageEnglish (US)
Pages (from-to)27-52
Number of pages26
JournalPublic Budgeting and Finance
Issue number2
StatePublished - Jul 1 2023

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics
  • Public Administration

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