Sinking Fund Call

DEFINITION of 'Sinking Fund Call'

A provision allowing a bond issuer the opportunity to buy outstanding bonds from bondholders for a set rate, using money (a sinking fund) from the issuer's earnings saved specifically for security buybacks. Because it adds doubt for investors over whether the bond will continue to pay until its maturity date, a sinking fund call is seen as an additional risk for investors.

BREAKING DOWN 'Sinking Fund Call'

Securities that have a sinking fund call provision provide higher yields to make up for the additional risk associated with holding them. Also, if the bonds are called, the call price is usually paid at a premium.

Borrowers who opt to have a sinking fund call mitigate interest rate risk, allowing for the opportunity to buy back outstanding securities and issue new ones with lower interest rates.

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RELATED FAQS
  1. 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 >>
  2. 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 >>
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    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 >>
  4. A corporate bond I own has just been called by the issuer. How can a company legally ...

    Bond issues can contain what is referred to as a call provision, which is a right afforded to the issuing company enabling ... Read Answer >>
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