Finschool By 5paisa

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A bullet bond is a type of debt investment in which the entire principal amount is paid in one go rather than being repaid over the course of the bond’s existence. Bullet bonds are non-callable since their issuer cannot redeem them early.

The rate of interest on bullet bonds issued by stable governments is normally low because there is little chance that the lender will be unable to collect the lump sum payment. If a company has a subpar credit rating, a corporate bullet bond may be subject to a higher interest rate.

In any case, because the lender does not have the opportunity to repurchase the bond in the event that interest rates change, bullet bonds often pay less than equivalent callable bonds.

Bullet bonds are issued by both businesses and governments in a range of maturities, from short-term to long-term. Generally speaking, a bullet portfolio is a collection of bullet bonds.

Because a bullet bond requires the issuer to repay the entire amount at once rather than in a series of smaller installments over time, it is generally thought to be riskier for the issuer than an amortizing bond.

As a result, an amortizing bond may draw in more investors than a bullet bond for issuers who are relatively new to the market or who have less-than-stellar credit ratings.

Generally speaking, a bullet bond costs the investor more to buy than a comparable callable bond.


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