A bullet bond, also called a vanilla bond, is the simplest and commonest type of bond. It has no special features.
A bullet bond is redeemed on a fixed maturity date and pays a fixed rate of interest. Examples of features that a bullet bond will not have include:
- floating rates,
- being redeemable at any other date, whether at the option of the holder or the issuer,
- convertibility,
- embedded options such as those in structured notes.
The comparative simplicity of bullet bonds makes them easy to value (compared to more complex debt securities). This does not necessarily make valuation always easy: the main difficulty usually being evaluating credit risk. The most important characteristics of bullet bonds are:
- maturity date,
- coupon rate,
- issuer's credit worthiness,
- how the bonds rank against other debt that may be senior or junior to it.