What is a 'Serial Bond'

A serial bond is a bond issue that is structured so that a portion of the outstanding bonds mature at regular intervals until all of the bonds have matured. Because the bonds mature gradually over a period of years, these bonds are used to finance projects that provide a consistent income stream for bond repayment. The entire bond issue is sold to the public on the same date, and the maturity dates are stated in the offering documents.


If an issuer reduces the dollar amount of bonds outstanding, it reduces the risk that the issuer misses a principal repayment or interest payment and defaults on the bond issue. While a serial bond issue requires the issuer to repay specific bondholders on a stated date, other bond issues are structured with a sinking fund.

The Differences Between Sinking Funds and Serial Bond Issues

In a sinking fund, the issuer makes periodic payment to the bond issue's trustee, and the trustee purchases bonds in the open market and retires the bonds. The trustee represents the interests of the bondholders and must use the sinking fund payments to buy bonds and retire them. Instead of retiring bonds according to a specific schedule, the trustee purchases bond from any bondholder who is willing to sell his holdings. Both sinking funds and serial bond issues reduce the total dollar amount of bonds outstanding over time.

Factoring in Municipal Revenue Bonds

A serial bond structure is a common strategy for municipal revenue bonds, because these bonds are issued for fee-generating projects built by states and cities. Assume, for example, that a city builds a sports stadium that is funded with parking fees, stadium concession income and lease income. If the bond issuer believes that the facility can generate income consistently each year, it can structure the bond for serial maturity dates. As the total amount of bonds outstanding decreases, the future risk on the bond issue defaulting also declines.

Examples of Bond Rating Companies

Standard & Poor’s and Moody’s Investor Services both provide bond ratings that assess the ability of a bond issuer to repay principal and interest payments on time. A bond issue with a sinking fund or a serial maturity has more creditworthiness than a bond issue that matures entirely on one maturity date. If, for example, a serial bond for a $10 million stadium bond misses bond interest payments 15 years after the issue date, a certain dollar amount of bonds are already paid off before year 15. Because fewer bonds are outstanding, the issuer may be able to recover financially and pay the interest payments that were missed.

  1. Serial Bond With Balloon

    A combination of a serial bond issue and a term bond issue. Essentially, ...
  2. Straight Bond

    A straight bond is a bond that pays interest at regular intervals, ...
  3. Bond Market

    The bond market is the environment in which the issuance and ...
  4. Discount Bond

    A discount bond is a bond that is issued for less than its par ...
  5. Bond Resolution

    1. A document used with government bonds, especially general ...
  6. American Callable Bond

    A bond that can be redeemed by the issuer at any time prior to ...
Related Articles
  1. Investing

    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. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  3. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  4. Investing

    How Bonds Are Vital to a Successful Portfolio

    While bonds are a vital part of an investment portfolio, they are often ignored.
  5. Investing

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  6. Investing

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  7. Investing

    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.
  1. 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 >>
Hot Definitions
  1. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  2. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  4. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  5. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center