Anticipation notes (TAN, BAN, GAN)
Also known as: municipal notes, short-term municipal notes
Anticipation notes are short-term municipal securities issued to cover temporary cash needs until an expected source of money arrives — taxes (TANs), bond proceeds (BANs), grants (GANs), or revenues (RANs).
Anticipation notes are short-term debt instruments that state and local governments issue to bridge timing gaps in their cash flow. A municipality may need to pay teachers in September even though property taxes are not collected until spring — so it borrows now and repays when the anticipated money comes in. Maturities are typically one year or less, and interest is generally exempt from federal income tax like other municipal debt.
Each type is named for the money that repays it. Tax anticipation notes (TANs) are repaid from future tax collections, such as property taxes. Bond anticipation notes (BANs) provide interim financing for a project and are paid off with the proceeds of a long-term bond issue sold later. Grant anticipation notes (GANs) are repaid from expected federal or state grant money. Revenue anticipation notes (RANs) draw on future non-tax revenues, and tax and revenue anticipation notes (TRANs) combine both sources.
Because the repayment source is identified in advance and the term is short, anticipation notes generally carry low risk and low yields. Instead of letter bond ratings, Moody's rates municipal notes on its MIG (Municipal Investment Grade) scale, with MIG 1 as the strongest designation.
The SIE and Series 7 exams both cover anticipation notes in their municipal debt chapters. The most common question format simply asks you to match the acronym — TAN, BAN, GAN, RAN, or TRAN — to the funding source that repays it.
Key takeaways
- Anticipation notes are short-term municipal securities that bridge cash-flow gaps until expected funds arrive.
- TANs are repaid by taxes, BANs by long-term bond proceeds, GANs by grants, and RANs by other revenues.
- Maturities are usually one year or less, and interest is typically exempt from federal income tax.
- Municipal notes are rated on Moody's MIG scale rather than with letter bond ratings.
- SIE and Series 7 questions usually test matching each acronym to its repayment source.