What Is a Sinkable Bond?

Bond repayment is also the behavior of the bond issuer to repay principal and interest on the bonds due. Bond repayment methods can be roughly divided into three types: repayment at maturity, mid-term repayment and deferred repayment. Interim repayment can be divided into four types: regular repayment (also divided into lottery repayment, purchase repayment), arbitrary repayment (also divided into full repayment, partial repayment), purchase cancellation, and early redemption. Early redemption is divided into mandatory redemption, selective redemption, deferred redemption, and redemption. Repayment at maturity, in accordance with the repayment period agreed upon at the time of bond issuance, the debt will be fully repaid at one time at the maturity of the bond and the corresponding bond will be recovered. Interim repayment, before the maturity of the bond, according to the agreement at the time of issuance, begin to repay the debt in installments and recover the corresponding bond, and all the debts will be fully paid when the bond matures. Adopting the mid-term repayment method can disperse the pressure of the issuer to repay the principal and interest at one time. At the same time, repaying a part of the principal first can increase the attractiveness of the bond to investors. Deferred repayment, after the issuer agrees that when the bond is due, the investor has the right to decide whether to continue to hold the bond at the original fixed interest rate and repay it at a specified date in the future. This method is usually accepted by investors only when the market interest rate is constant and falling; for issuers, if the market interest rate changes little, signing a deferred debt repayment agreement with the investor can save the issue of new bonds Costs. ^[1]

Bond repayment

A bond is a document of claims. Except for a permanent bond, all other bonds must be repaid at maturity, that is, the bond is repaid. Bond repayment or bond repayment is to replace bonds that are about to expire with a bond with a longer maturity date. Generally, new bonds are used to exchange old bonds that are not due or mature. According to different repayment methods, the repayment of bonds can be divided into three types: repayment at maturity, mid-term repayment, and deferred repayment. According to the proportion of the amount at the time of repayment, it can be divided into full repayment and partial repayment, and partial repayment can be divided into regular repayment and arbitrary repayment at any time according to the repayment time. In the mid-term repayment, two methods can be used: repayment by lot and repayment by purchase. ^[2]

Repayment of bonds

Repayment at maturity is the full repayment of the principal of the bond at a time when the bond matures at the repayment time specified in the issuance. China's Treasury bills and corporate bonds are used in this way.
The repayment of the principal at the maturity of the bond is determined by the intrinsic properties of the bond. It is a self-explanatory agreement between the buyer and the seller in general. To repay the principal, it must be explained in advance at the time of issuance, and special repayment clauses have been set. ^[3]

Mid-term bond repayment

Interim repayment is the repayment method of partial or full repayment of the principal before the maturity of the bond. When taking mid-term repayment, partial repayment is to repay the issue amount to investors in a certain proportion after a period of time. Repayments are generally made every six months or a year, the purpose of which is to reduce the burden of repayment by bond issuers. Partial repayment can be divided into regular repayment and time repayment according to time division. Timely repayment is to repay the principal in a certain proportion before the maturity of the bond on a specified date. The repayment date, method and proportion of the regular repayment are determined at the time of bond issuance and specified in the bond issuance conditions. Repayment at any time is also a method of repayment at the issuer's discretion. This method of repayment is entirely based on the issuer's will, sometimes damaging the interests of investors, and is not commonly used in practice.
Full repayment is the repayment method of repaying the principal one time before the bond matures. One way of adopting this repayment method is that the debt issuer has an excess of funds due to various reasons after issuing the debt, and repaying the bond once in advance can avoid unnecessary interest burdens.
Second, due to the reduction of market interest rates after the issuance of bonds, the interest rate at the time of issuance is too high. In this case, repaying the old bonds in advance and reissuing new bonds with lower interest rates can reduce the financing cost. Full repayment is often bad for investors, because after the old debts with high interest rates are repaid, there are often no high interest rate bonds in the market, making it difficult to find new investment opportunities.

Deferred repayment of bonds

The deferred repayment of bonds is also set at the time of bond issuance, which gives investors of the bonds the right to continue to hold the bonds at the original interest rate until a specified date or one of several specified dates after the bonds expire. This clause is beneficial to both issuers and buyers of bonds. It saves the trouble of issuing new bonds when fundraisers need to continue to issue bonds and investors are willing to continue to purchase bonds, and bondholders can also adjust flexibly accordingly. Portfolio of assets.