Sponsored Link

Sinking Fund

A sinking fund is a provision in a bond contract that requires the issuer to reduce the financial obligation over the life of the bond.

The issuer, usually through a trustee , will purchase a specified percentage of the issue each year in one of two ways.

  1. They can call in for redemption, at par value, bonds to satisfy the requirement.
  2. Or the issuer can buy the required bonds on the open market.

The issuer will always choose the method most advantages to themselves.