What’s more fun than a Super Soaker on a hot, sunny day? A super sinker bond, that’s what.
A “super sinker” is a bond with a long-term coupon but a potentially short maturity, and we most often see them associated with mortgages.
For example, let’s say we buy a ten-year super sinker mortgage revenue bond. And now let’s say that one of the borrowers whose mortgage was financed by said bond decides to sell the house they bought. The money from that paid off mortgage goes into a super sinker fund, which means our super sinker bond is likely to reach maturity a lot sooner than ten years from now. Heck, it might be closer to three or four years.
Investors like super sinker bonds because they pay long-term interest rates, but usually mature quickly. They can be a little risky, especially since we’re never sure when the bond will be called, but that’s part of the reason they tend to be less expensive than some other investment options. And that’s part of the reason they can be so much fun, even when it’s not hot and sunny outside.
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Finance: What are Government Bonds?52 Views
finance a la shmoop. what are government bonds?
now we're gonna narrow this question a bit and declare these bonds to be US [hands shape the question]
government bonds. our answer would be a tad different if we were discussing
bonds backed by North Korea Nigeria or Egypt so US government bonds come in a
few flavours. generally speaking they range in duration that is how long it
takes for them to mature and the principal get paid off. short-term US
government paper it's a fancy term for a bond ,refers to things that come due in a
year or less. that's short-term. year or less. and then there are Treasury bills
which come in a variety of durations and our price like this note how different
these look versus just you know buying a bond .but when you buy a bond it has a [chart shows prices]
face amount of say a thousand bucks for what is called its par value. that piece
of paper might agree that clown shoes incorporated which is where most
congressmen get their Footwear of course, will pay 30 bucks twice a year to the
holder for 10 years, and then pay back the original thousand bucks invested
it's like a normal vanilla bond, the interest rate here in this case is 6%
per year, but many US government notes are sold at auction which means they
sell at a discount to their par value. well regardless of how they're sold US [auction with a clown in attendance]
government bonds are backed by what is generally perceived in the world as the
most certain or secure financial backing. even more powerful than Google .if sorry
Larry and Sergey we're just keeping it real. the bonds are backed specifically
by the US government's right to tax its citizens. and oh they tax us. do they ever.
so now you can stop wondering about that bottomless hole a third or more of every
paycheck vanishes into. [portion of paycheck flies down dark hole in the ground]
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