Bond-Proceeds Reinvestment Products: GICs, Repos, Treasuries and SLGS

Bond proceeds can be invested only in instruments that the issue's own bond documents, state law and the federal tax rules all allow, and this page maps the products built around those limits.

The SEC has described the products used to reinvest municipal bond proceeds as instruments tailored to municipalities' specific collateral and spend-down needs, such as guaranteed investment contracts (GICs), repurchase agreements (repos) and forward purchase agreements.

This page is the map of those products: what each one is, how it handles a draw schedule and how each is bought, while the parent guide to bond proceeds covers the surrounding questions from fund types to arbitrage.

mGIC (Municipal Government Investors Corp.) is an independent, SEC-registered municipal advisor that helps issuers evaluate and competitively bid three of these products, guaranteed investment contracts, full-flex repurchase agreements and structured portfolios of U.S. Treasury securities; it sells none of them and does not act as principal.

Its stated order of priorities for reinvested proceeds is safety first, then liquidity, then yield.

Where are permitted investments for bond proceeds defined?

Permitted investments are defined in three places at once: the bond documents for the issue, state law, and the federal tax rules that apply to tax-advantaged bonds.

Whether a particular instrument is permitted under the indenture or under state law is a separate question from the federal tax analysis, and the bond indenture and the state-by-state guide are where those two questions get answered.

Federal tax law frames the question through section 148 of the Internal Revenue Code, which defines higher yielding investments as investment property that produces a yield over the term of the issue materially higher than the yield on the issue.

Investment property under section 148(b) includes any security, any obligation, any annuity contract and any investment-type property.

Investment-type property generally includes any property held principally as a passive vehicle for the production of income, including any benefit based on the time value of money (26 CFR 1.148-1(e)).

Tax-exempt bonds themselves are generally not investment property, except that specified private activity bonds are treated as investment property for most issues under section 148(b)(3).

What that framework means instrument by instrument, and where the yield-restriction lines sit, is the subject of the guide to permitted investments and the guide to the federal arbitrage rules.

Investment agreements: GICs and full-flex repos

An investment agreement is a contract with a provider rather than a portfolio the issuer owns, and the two forms this guide covers in depth are guaranteed investment contracts and repurchase agreements.

The MSRB's glossary defines a guaranteed investment contract as an investment, secured by a contract with a financial institution, that guarantees a fixed rate of return and a fixed maturity.

For tax purposes the term reaches further: a guaranteed investment contract includes any nonpurpose investment with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated rate, and it also covers agreements to supply investments on two or more future dates (26 CFR 1.148-1(b)), which is where a forward delivery agreement sits.

Provider credit, withdrawal provisions and rate setting are each their own subject, and the guide to guaranteed investment contracts is the entry point for that structure.

A repurchase agreement is the second contracted form: in the New York Fed researchers' description, a repo is a sale of securities combined with an agreement to repurchase them on a specified future date at a prearranged price, which makes it resemble a collateralized loan economically.

The collateral is the protection, and the amount by which the collateral's value exceeds the cash lent is the haircut, illustrated by the New York Fed as a $95 loan against $100 of collateral, a 5% haircut.

For bond proceeds, mGIC evaluates and competitively bids the full-flex form of this product, and the guide to full-flex repurchase agreements takes that structure up in full.

When the choice is between the two contracted forms, the GIC vs flex repo comparison lays out the trade-offs side by side.

Securities: structured Treasury portfolios, SLGS and agency securities

Securities are the second family: obligations the issuer owns outright rather than contracts with a provider, including structured portfolios of U.S. Treasury securities, Treasury's own SLGS and, in refunding escrows, federal agency securities.

A structured Treasury portfolio is built of U.S. Treasury securities matched to the issue's anticipated cash needs, with an allocation to a money market fund held for faster-than-expected spend-down, and mGIC evaluates and competitively bids them.

The guide to structured Treasury portfolios covers how the portfolio is matched to a draw schedule.

SLGS (State and Local Government Series securities) are non-marketable Treasury securities that Treasury offers to give issuers of tax-advantaged bonds investments that help them comply with the Internal Revenue Code (31 CFR 344.0(a)).

They come in two types: Time Deposit securities, which may be issued as certificates of indebtedness, notes or bonds, and Demand Deposit securities, which may be issued as certificates of indebtedness (31 CFR 344.0(b)).

They may be bought only with an eligible source of funds, a term 31 CFR 344.1 defines to include gross proceeds of tax-advantaged bonds and related yield-restricted amounts, and whether a particular fund qualifies is a determination for bond counsel.

For the program, issuer includes a conduit borrower, and tax-advantaged bond takes its meaning from 26 CFR 1.150-1(b), which includes tax-exempt bonds and certain tax-credit and direct-pay bonds.

The SLGS rate is the current Treasury borrowing rate less one basis point, as released daily by Treasury in a SLGS rate table, set at zero if that result would be negative; Treasury determines the borrowing rate itself, so the SLGS rate is not a published market yield (31 CFR 344.1).

Maturities, subscription mechanics and settlement are covered in the guide to SLGS, and reading the daily table in the guide to the SLGS rate table.

For refunding escrows, the MSRB's glossary notes that advance refunding proceeds are generally invested in Treasury or federal agency securities, though other instruments are sometimes used; the SLGS or open-market securities comparison takes up that choice.

Pooled vehicles: money market funds and LGIPs

The pooled forms this guide covers are money market funds, regulated under SEC Rule 2a-7, and local government investment pools, which GFOA notes are not registered with the SEC.

Under Rule 2a-7, a government money market fund invests 99.5% or more of its total assets in cash, government securities and/or fully collateralized repurchase agreements (17 CFR 270.2a-7(a)(14)).

Government and retail funds may use amortized cost and penny rounding to keep a stable price per share; the accounting method is permitted by the rule, not a guarantee of the price.

The money market funds guide takes up the fund types and the SEC's 2023 reforms.

A local government investment pool is, in the MSRB glossary's definition, a pool set up by a state or local governmental entity to invest the public funds of participating governmental units, with participants buying shares or units, often in a trust.

GFOA's best practice notes that pools are not registered with the SEC, that investments in them are not insured or guaranteed, and that substantial losses have occurred in the past.

GFOA recommends confirming that a pool is an eligible investment for the funds involved, reading its offering statement, investment policy and audited financials, and checking whether it seeks a constant or a fluctuating share price.

The local government investment pool guide takes up the pool-versus-bid decision for a specific set of proceeds.

How does a product get matched to the fund type?

The match is driven by the fund's spending pattern and by what the documents and the tax rules allow that fund to hold, not by preference among the products.

The fund types this guide covers include the construction or project fund, the debt service reserve fund, the debt service fund, capitalized interest and escrow funds; the fund types guide takes up how each is invested.

The tax rules build the spending pattern directly into procurement: GIC solicitation terms must take into account the issuer's reasonably expected deposit and drawdown schedule (26 CFR 1.148-5(d)(6)(iii)(A)(5)).

The securities side works the same way, with mGIC matching structured Treasury portfolios to anticipated cash needs, the same cash pattern a draw schedule documents, and holding the money market allocation against faster-than-expected spend-down.

Some products are limited to particular funds by definition, since SLGS may be bought only with an eligible source of funds, so eligibility comes before any comparison of rates.

Which product ends up specified for a given issue is the issuer's decision, taken with bond counsel and tax counsel, who give the legal and tax conclusions; the advisor's role is to run the comparison and the bidding.

How is each product procured?

Investment agreements are typically competitively bid among providers, SLGS are bought from Treasury by subscription, and pooled vehicles are entered by buying shares or units.

The bidding matters because the arbitrage rules start from a presumption: an investment not traded on an established securities market is rebuttably presumed not to have been bought or sold at fair market value (26 CFR 1.148-5(d)(6)(i)).

The SEC's 2011 litigation release against Wachovia described the most common way to establish fair market value as competitive bidding run by bidding agents.

For a GIC or an investment bought for a yield-restricted defeasance escrow, the regulation treats the purchase price as fair market value on the purchase date when the safe harbor's conditions are met: a bona fide solicitation, qualifying bids, the winning-bid rule, a provider certification and record retention (26 CFR 1.148-5(d)(6)(iii)).

Those conditions include soliciting at least three reasonably competitive providers, receiving at least three bids from solicited providers without a material financial interest in the issue, at least one of them from a reasonably competitive provider, and using a bidding agent that does not itself bid (26 CFR 1.148-5(d)(6)(iii)(A)(7) and (B)).

For a GIC the winning bid must be the highest-yielding bona fide bid determined net of broker's fees, and for escrow securities the lowest-cost bid including broker's fees, no more than the cost of the most efficient all-SLGS portfolio measured when bids are due, a comparison the rule does not require on a day SLGS sales are suspended (26 CFR 1.148-5(d)(6)(iii)(C)).

When fewer than three qualifying bids arrive the safe harbor is simply not met, which the fewer than three bids guide covers, and the conditions themselves are set out in the fair-market-value safe harbor and bid specifications guides.

SLGS skip the bidding: the issuer subscribes, Treasury releases the SLGS rate table by 10 a.m., Eastern time, each business day, and the table that applies to a subscription is the one in effect on the business day the subscription process starts (31 CFR 344.4(b)).

Lead times apply: Treasury must receive the subscription at least five calendar days before the security's issue date for amounts of $10 million or less, and at least seven calendar days before for larger amounts (31 CFR 344.5(a) for Time Deposits, with the same timing for Demand Deposits under 344.8(a)).

Pooled vehicles are entered by purchase: the issuer buys shares or units in the fund, subject to the deposit, withdrawal and advance-notice terms GFOA notes pools may impose.

The advisory side is regulated too: the federal securities laws define municipal financial products to include guaranteed investment contracts, and investment strategies to include plans or programs for investing the proceeds of municipal securities (15 U.S.C. 78o-4(e)(3), (5)).

Advice on investing bond proceeds falls within that definition, which makes it municipal advisory activity; the municipal advisor guides cover the role and its duties.

As a Bidding Agent, mGIC prepares the bid specifications, solicits qualified providers, manages questions, receives the bids and compares the rate and non-rate terms, then coordinates documentation and settlement and delivers the Bidding Agent and provider certifications to bond counsel.

Its fee is paid by the winning provider rather than the issuer, at or below the safe-harbor maximum in the Treasury arbitrage regulations, and it is disclosed.

mGIC has more than $60 billion in bond proceeds invested and swap notional executed, across more than 1,000 transactions for issuers in more than 40 states.

For a read on how a current fund's investments line up with its documents, its spending schedule and the products above, mGIC offers a free, no-obligation reinvestment review through the contact page, and its daily rate-update emails carry Treasury yields, SOFR and SLGS links each business day.

Final conclusions about what an issue may purchase, and whether a solicitation satisfies the safe harbor's conditions, belong to bond counsel and tax counsel.

Last updated 2026-10-06.

This page is general educational information about municipal finance and federal and state rules as of the date shown. It is not legal, tax or investment advice, and it is not a recommendation about any particular investment. Product availability, legality and suitability depend on the issuer, jurisdiction, governing documents and transaction-specific facts. Final legal and tax determinations remain with the issuer's bond counsel, tax counsel and other advisors.