Bullet bond

Bullet bond,

Definition of Bullet bond:

  1. Both corporations and governments issue bullet bonds in a variety of maturities, from short- to long-term. A portfolio made up of bullet bonds is generally referred to as a bullet portfolio. A bullet bond is considered riskier than an amortizing bond because it gives the issuer a large repayment obligation on a single date rather than a series of smaller repayment obligations spread over several dates. As a result, issuers who are relatively new to the market or who have less than excellent credit ratings may attract more investors with an amortizing bond than with a bullet bond. Typically, bullet bonds are more expensive for an investor to purchase compared to an equivalent callable bond since the investor is protected against a bond call during a period of falling interest rates.

  2. Common type of bond that pays regular interest (or is sold at a discount on the par value), and fully amortizes on a fixed maturity date with the repayment of principal in one tranche instead of installments.

  3. A bullet bond is a debt instrument whose entire principal value is paid all at once on the maturity date, as opposed to amortizing the bond over its lifetime. Bullet bonds cannot be redeemed early by an issuer, which means they are non-callable. Because of this, bullet bonds may pay a relatively low rate of interest due to the issuer's interest rate exposure.

Meaning of Bullet bond & Bullet bond Definition