Issuers may defease bonds by placing treasury securities into a dedicated trust. This structure allows obligations to shift away from the issuer.

Legal defeasance fully releases the issuer from most responsibilities. Bondholders then rely on payments sourced from the trust.

Covenant defeasance instead removes specific covenant requirements. The issuer remains tied to certain remaining obligations.

Moreover, defeasance can appeal when market conditions increase issuer costs. This approach offers potential flexibility for long‑dated bonds.

Finally, comparing a bond’s coupon to treasury benchmarks helps gauge defeasance efficiency. This method provides a quick indication of potential issuer savings.