What is Super Sinker

Super sinker is a type of bond that has a long-term coupon but a potentially short maturity. If the bond principal is paid before maturity, bondholders receive the value of the principal back quickly. Super sinker bonds typically attract investors who want a brief maturity but also want longer-term interest rates.

A super sinker fund is most likely to be used in home financing, where there is a greater risk of bond prepayment. Super sinker funds are specifically associated with single family mortgage revenue bonds, which have allowed many homebuyers with low- and moderate-incomes to purchase their first home. Funds that are gathered through the prepayment of mortgages go into the super sinker. Otherwise, a super sinker operates likes a normal sinking fund.


Super sinker bonds, for the most part, are collateralized by mortgages and are used to reduce prepayment risk. 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 it 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. This way, even though super sinker bonds may have an actual lifespan that lasts only three to five years, their yields are usually similar to bonds with much longer maturities. Super sinkers are typically sold at par or at a discount to par, since their short duration makes paying a premium for the bonds a relatively great risk.

Estimating Super Sinkers’ Yield to Call

Before investing in super sinkers, investors should carefully estimate the securities’ yield to call, or the total return that would be received if the bond purchased was held until its call date instead of full maturity. Because it is impossible to know when an issuer may call a bond, investors can only estimate this calculation based on the bond’s coupon rate, the time until the first or second call date and the market price. A more comprehensive yield-to-call calculation formula is available here.

While the actual maturity of the super sinker may not be exactly known, investors can estimate its yield to maturity, meaning the total return one would receive if the bond was held through its maturity date, based on past prepayments for similar mortgage profiles.