Bullet bond

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:

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.
Copyright Graeme Pietersz © 2005-2020