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What is a Bullet Bond?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 28 August 2016
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    2003-2016
    Conjecture Corporation
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The bullet bond is an example of a bond that cannot be redeemed before the date of maturity has arrived. This characteristic separates it from a callable bond, in that the bullet type has a guaranteed interest rate that cannot be changed at any time before maturation.

Bullet bonds are usually issued with a lower rate of interest. This is because they are considered to be a low risk investment. Because it is not possible to call the bond before the maturation date, there is no opportunity for the applied interest rate to rise or fall. While the interest rate is fixed, the investor will pay for this level of protection. The typical bullet bond is more expensive than callable bonds, where there is some possibility of being impacted by falling market interest rates.

For people who are new to investing, the bullet bond can be an excellent way to begin establishing a portfolio of assets. Because the bond maturity date for the bond is fixed, and the rate of interest guaranteed, there is very little risk involved. While the return on the investment will be minimal in most cases, the use of the bullet bond is a practical and safe way to slowly build a credible bank of assets.

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Finding bullet bond offers is not difficult at all. Most brokerage houses maintain a listing of currently available bullet bond offerings that vary from very modest rates of interest to more expensive bonds that will yield a slightly higher rate of interest. Investors that prefer to deal with these types of bonds as a means of realizing a small profit from investments may choose to stagger the maturation dates of the bond arrangements so that a steady flow of interest revenue is generated throughout the calendar year. As a means of creating a steady source of financial growth with relatively little opportunities for market conditions to undermine the effort, building a financial portfolio on a foundation of bullet bond strategies is an excellent approach.

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