Bond amortisation: when principal comes back in instalments
· beginner
Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
An ordinary bond returns its principal in one sum at maturity. An amortising one returns it in instalments across the life of the issue.
What it looks like
On dates known in advance, part of the principal is repaid. The coupon then accrues on the remaining balance — that is, it shrinks along with the debt.
What it changes
Credit risk falls: the more principal already returned, the less is lost if the issuer runs into trouble later.
Duration comes out shorter than the formal term: money returns earlier, so price sensitivity to rates is lower — Duration: why long bonds fall harder.
Reinvestment risk appears: the returned instalments have to be put somewhere, and the rate available by then may be lower.
Where it appears
Often in corporate issues and in some government ones. It is usually stated in the name or in the issue parameters.
Who it suits
Someone who values a regular return of capital and is willing to handle reinvestment. For someone who wants to lock in a yield for a long time, amortisation gets in the way.
Related: How to choose a bond, step by step and Coupons and accrued interest: why you pay more than the price.
Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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