What is a ‘Sinker’
Sinker-a bond with payments, provided that the sinking Fund of the Issuer. Sinker bond interest and principal payments arising from revenue a sinking Fund.
The sinking Fund is a Fund that has a regular cash contributions made to it on a regular basis, mostly as a way to increase the confidence of investors in the Fund. Seeing the money in the Fund on a regular basis helps the investor confidence that promised payments will be made and that the sinking fun can be used to pay debt obligations or preferred stock issues.
Payments sinker bonds are paid from money that the Issuer has allocated for the redemption of the bonds that it issued in the year. Through redemption of some bonds before their maturity, the company avoids the high cost of the repayment of all bond principal at the same time, when the bonds reach original maturity.
Why the term sunk? Sinker bonds by the bond Issuer to create a specialized Fund that is set amount paid off over time; in part the outstanding issue that is not paid off is called sunk.
Breaking Down The ‘Sinker’
Sinker theoretically has a lower risk of default at maturity because the Issuer plans to retire early a portion of the bonds that it issued. However, it also has reinvestment risks for callable bonds, because if interest rates decline, the investor may have the bond repurchased by the Issuer or the sinking Fund price or the current market price.
Is the weight of bonds and then there are super sinker bonds. Super sinker bonds, generally, mortgage bonds, but the term may also be applied to any type of long-term bonds with coupons and short maturities.
If the super sinker bond refers to the mortgage loan, it can be a pre-paid credit that allows the holder of the mortgage to obtain long-term profitability in the short term.
The Advantage Of The Sinker Bond
Sinker bonds have an advantage over the other-the periodic redemption of bonds, as it allows investors to know exactly when they will get their money back. Sinkers to clearly determine how much you get back when, so the risk of mortgage bonds, which are to sell or refinance without knowledge of the omitted. In addition, on each payment date, the sink reduces the investor exposure to credit and interest rate risk.