Super Sinker

DEFINITION of 'Super Sinker'

A bond with long-term coupons but a potentially short maturity. A super sinker fund is most likely to be used in home financing, where there is a greater risk of bond prepayment. If the bond principal is paid before maturity – prepaid – bondholders receive the value of the principal back quickly. Super sinker bonds attract investors who want a brief maturity but also want longer-term interest rates.

BREAKING DOWN 'Super Sinker'

Mortgages and housing bonds carry a level of prepayment risk, since the homeowner may repay the value of the mortgage in full before the mortgage’s maturity date has been reached. This can happen if the homeowner sells the home, but can also arise if the homeowner refinances the mortgage at a lower rate.

When a super sinker is attached to a mortgage, it receives special treatment. A specifically identified bond maturity is selected to receive the prepayments, so all mortgage prepayments are applied to the super sinker first. This allows the bond to be retired faster than other bonds.

While the actual maturity of the super sinker may not be exactly known, investors can estimate the maturity based on past prepayments for similar mortgage profiles. Super sinkers are typically sold at par or at a discount, since the short duration makes paying a premium for the bond a relatively great risk.

RELATED TERMS
  1. Sinker

    A bond with payments that are provided by the issuer's sinking ...
  2. Term To Maturity

    The remaining life of a financial instrument. In bonds, it is ...
  3. Average Effective Maturity

    For a single bond, it is a measure of maturity that takes into ...
  4. Current Maturity

    The interval between the present date and the maturity date of ...
  5. Bond

    A debt investment in which an investor loans money to an entity ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
Related Articles
  1. Managing Wealth

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  2. Managing Wealth

    The Risks Of Mortgage-Backed Securities

    Find out how weighted average life guards against prepayment risk.
  3. Markets

    How Do I Calculate Yield To Maturity Of A Zero Coupon Bond?

    Yield to maturity is a basic investing concept used by investors to compare bonds of different coupons and times until maturity.
  4. Markets

    Comparing Yield To Maturity And The Coupon Rate

    Investors base investing decisions and strategies on yield to maturity more so than coupon rates.
  5. Managing Wealth

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  6. Markets

    Simple Math for Fixed-Coupon Corporate Bonds

    A guide to help to understand the simple math behind fixed-coupon corporate bonds.
  7. Trading

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  8. ETFs & Mutual Funds

    Key Strategies To Avoid Negative Bond Returns

    It is difficult to make money in bonds in a rising rate environment, but there are ways to avoid losses.
  9. ETFs & Mutual Funds

    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. ...
  10. Markets

    Using Excel PV Function to compute Bonds PV

    To determine the value of a bond today - for a fixed principal (par value) to be repaid in the future at any predetermined time - we can use an Excel spreadsheet.
RELATED FAQS
  1. How does the current interest rate risk affect bondholders in the US?

  2. What happens to the price of a premium bond as it approaches maturity?

    Learn how bonds trade in regard to premiums and discounts, and how bond prices shift closer to par value as bonds approach ... Read Answer >>
  3. Can the marginal propensity to consume ever be negative?

    Find out when a bond's yield to maturity is equal to its coupon rate, and learn about the basic components of bonds and how ... Read Answer >>
  4. What types of fees apply to checking accounts?

    Learn about the difference between a bond's coupon rate and its yield to maturity, and how the par value, coupon rate and ... Read Answer >>
  5. Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate ... Read Answer >>
  6. What is the difference between yield to maturity and the yield to call?

    Determining various the various yields that callable bonds can provide investors is an important factor in the bond purchasing ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center