Sinkable Bond

DEFINITION of 'Sinkable Bond'

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.

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