Sinkable Bond

What is a 'Sinkable Bond'

A sinkable bond is a bond issue that is backed by a fund, called a sinking fund, that sets aside money on a regular basis to ensure investors that principal and interest payments will be made as promised. Sinkable bonds reduce the risk for investors and therefore enable the issuer to pay a lower interest rate on the sinkable bond being issued. Companies are required to disclose to investors their sinkable bond obligations through their corporate financial statements and prospectus.

BREAKING DOWN 'Sinkable Bond'

A sinkable bond issuer is required to buy a certain amount of the bond back from the purchaser at various points throughout the life of the bond, at a set sinking price. Issuers set aside money in their sinking fund to repay the money owed based on the bond's par value. If interest rates fall below the nominal rate of the bond, sinking fund provisions can allow the company to repay all or part of the amount owed, and refinance the remaining balance to the lower rate.

RELATED TERMS
  1. Sinking Fund

    A means of repaying funds that were borrowed through a bond issue. ...
  2. Sinking Fund Call

    A provision allowing a bond issuer the opportunity to buy outstanding ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Doubling Option

    A sinking fund provision that gives a bond issuer the right to ...
  5. Sinker

    A bond with payments that are provided by the issuer's sinking ...
  6. Bond Purchase Agreement

    A legally binding document between a bond issuer and an underwriter ...
Related Articles
  1. Professionals

    Retiring Corporate Bonds

    FINRA Series 7 Online Study Guide, Section 4
  2. Bonds & Fixed Income

    Sinking Fund

    A sinking fund is a way for companies to pay off part of their bond issue before it reaches maturity. By eliminating its debt gradually, the bond issuer is more likely to attract investors concerned ...
  3. Bonds

    What bonds are: Debt securities where you lend money to an issuer (e.g., a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. ...
  4. Professionals

    Types Of Bonds

    We look at the many types of bonds and explain what differentiates them from each other.
  5. Bonds & Fixed Income

    Advanced Bond Concepts: Bond Type Specifics

    Before getting to the all-important subject of bond pricing, we must first understand the many different characteristics bonds can have. When it comes down to it, a bond is simply a contract ...
  6. Home & Auto

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  7. Retirement

    Analyzing The Best Retirement Plans And Investment Options: Bonds

    What they are: Debt securities in which you lend money to an issuer (such as a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. ...
  8. Investing

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
  9. Retirement

    Bond Basics: Conclusion

    Now you know the basics of bonds. Not too complicated, is it? Here is a recap of what we discussed: Bonds are just like IOUs. Buying a bond means you are lending out your money. Bonds are ...
  10. Bonds & Fixed Income

    Six Biggest Bond Risks

    Don't assume that you can't lose money in this market - you can. Find out how.
RELATED FAQS
  1. I have discovered that a bond I am interested in has a sinking fund. What does this ...

    First, understand that a sinking fund provision is really just a pool of money set aside by a corporation to help repay a ... Read Answer >>
  2. In what ways can a sinking fund affect bond returns?

    Find out how a bond sinking fund provision impacts the likely returns on a corporate bond, and learn why investors should ... Read Answer >>
  3. What are the tax benefits of establishing a sinking fund?

    Understand what a sinking fund is and what companies use it for, along with the tax and general financial benefits that a ... Read Answer >>
  4. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  5. What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields ... Read Answer >>
  6. In the context of a bond, what does the principal refer to?

    Get introduced to the world of bond investing and learn what the term "principal" means in reference to a corporate or government ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center