Require the issuer to set aside assets to pay bonds at maturity.
Bonds that require the issuer to set aside a pool of assets used only to repay the bonds at maturity.
What is Sinking Fund Bond ?
A sinking fund is maintained by companies for bond issues, and is money set aside or saved to pay off a debt or bond.
- Bonds issued with sinking funds are lower risk since they are backed by the collateral in the fund, and therefore carry lower yields.
- example may be a company issuing $1 million of bonds that are to mature in 10 years. Given this, it creates a sinking fund and deposits $100,000 yearly to make sure that the bonds are all bought back by their maturity date
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