Sinking Fund Provision
Bond feature requiring issuer to retire portions of the issue before maturity — reduces credit risk but creates reinvestment risk.
A sinking fund is a mandatory redemption schedule: the issuer must retire a percentage of the bond issue each year (e.g., 5% annually starting in year 10). Bonds to be redeemed are selected by lottery at par. For bondholders, sinking funds reduce credit risk (less debt outstanding = lower default probability) but create reinvestment risk (your bond might get called early at par, forcing you to reinvest at lower yields). Think of it as forced early retirement for bonds: instead of one big maturity, the issue shrinks over time. Sinking funds were common in the 1970s-80s but are rarer today. If your bond is called via sinking fund and you bought it at 105, you lose 5 points. Conversely, if you bought at 95, you gain 5 points.
Current Yield
Annual coupon income divided by the bond's clean price.
Running Yield
Annual coupon income divided by the bond's dirty price (clean price plus accrued interest).
Yield to Maturity (YTM)
The annualized return if you hold the bond to maturity, assuming all coupons are reinvested at the same rate.
Dirty Price
The total settlement price paid for a bond, including accrued interest.
Clean Price
The quoted bond price excluding accrued interest.
Accrued Interest
Interest that has accumulated since the last coupon payment, paid by the buyer to the seller.