A bond that contains a provision stipulating or allowing the systematic amortization/ retirement of outstanding debt (notes, bonds, preferred stocks, etc). Conventionally, the issuer puts interest and principal payments aside into a sinking fund account in order to pays out or retires portions of the bond issue’s outstanding debt on a periodical basis (usually each year). Sometimes, the timing of individual payments is determined randomly (by a lottery), leaving bondholders uncertain as to whether their bonds will be redeemed at a specific time or not. Infrequently, the issuer might be required to deposit repayment money with a trustee (which invests the funds at its disposal and uses the accumulated amounts to repay the bonds upon maturity). Such compulsory redemptions or uncertain payout timings would mean that the bondholders may be deprived of the opportunity to make a profit if the secondary-market price moves above the redemption price (usually par).
This bond is also referred to as a sinking fund bond.
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