sinking fund call

Sinking Fund Call

A provision allowing a bond issuer the opportunity to buy outstanding bonds from bondholders for a set rate, using money (a sinking fund) from the issuer's earnings saved specifically for security buybacks. Because it adds doubt for investors over whether the bond will continue to pay until its maturity date, a sinking fund call is seen as an additional risk for investors.

Notes:

Securities that have a sinking fund call provision provide higher yields to make up for the additional risk associated with holding them. Also, if the bonds are called, the call price is usually paid at a premium.

Borrowers who opt to have a sinking fund call mitigate interest rate risk, allowing for the opportunity to buy back outstanding securities and issue new ones with lower interest rates.

See also: Bond, Callable Bond, Effective Annual Interest Rate, Interest Rate, Interest Rate Risk, Sinking Fund

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sinking fund call

An issuer's call of a portion of an outstanding bond issue to satisfy the issue's sinking fund requirement. A sinking fund call is generally at par value with the bonds to be called determined by lot. Most bond issues provide investors with a period of protection between the date on which the issue is originally sold and the date on which the first sinking fund call takes place. For low-coupon bonds that sell at discount from par value, issuers will usually satisfy sinking fund requirements by purchasing bonds in the open market rather than calling them from investors. See also extraordinary call, optional call.