DEFINITION of 'Sinker'

A bond with payments that are provided by the issuer's sinking fund. A sinker's bond payments are paid from a pool of money that the issuer has set aside to repurchase a portion of the bonds it has issued each year. By repurchasing some bonds before they mature, the company avoids the large expense of repaying the bonds' entire principal at once, when the bonds reach their original maturity date.


A sinker theoretically has a lower default risk at maturity, since the issuer intends to retire early a portion of the bonds it has issued. However, it also has reinvestment risks similar to those of a callable bond because, if interest rates decline, the investor could have the bond repurchased by the issuer at either the sinking fund price or the current market price.

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