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A bond in which the issuer is only responsible for making coupon payments when it has sufficient income to do so. Income bonds are most common in reorganization plans in which the issuer is attempting to maintain operations in bankruptcy. An income bond is useful for the issuer because it provides capital quickly. However, it can be disadvantageous for the bondholder because there is little or no guarantee of repayment. As a result, income bonds are relatively rare securities.
A long-term debt security in which the issuer is required to pay interest only when interest is earned. This rare security, issued principally as part of a corporate reorganization, offers an investor a relatively weak promise of payment. Some issues require that unpaid interest be accumulated and made up in periods that earnings permit. Also called adjustment bond.