### Question
How does the law define arbitrage bond?


### Answer
Under *26 U.S.C. § 148*, **arbitrage bond** is defined as:

> any bond issued as part of an issue any portion of the proceeds of which are reasonably expected (at the time of issuance of the bond) to be used directly or indirectly—



(1) to acquire higher yielding investments, or



(2) to replace funds which were used directly or indirectly to acquire higher yielding investments

#### Citation:
  - *26 U.S.C. § 148*
  - Heading: **Subtitle A-Income Taxes > CHAPTER 1-NORMAL TAXES AND SURTAXES > Subchapter B-Computation of Taxable Income > PART IV-TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS > Subpart B-Requirements Applicable to All State and Local Bonds**

