Sinkable bond

Sinkable bond is a bond protected by sinking fund. That enables a feature of scheduled amortization. Bond is paid not when it matures, but yearly. For example, 10-years sinkable bond will be paid 1/10 each year. Therefore, in case of sinkable bonds weighted average life of the bond is important (it is shorter than period until it gets mature).

Sinkable bonds may be used to pay off some large investments made e.g. by municipalities or local governments. That can be cheaper for them than taking loan paying interest payments.

An issuer of singable bond is required to buy predefined amount of the bond at defined points at a sinking price. So if the interest rates fall below the nominal rate of the bond, sinking fund can allow to repay the amount owed and refinance remaining balance.


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