Bullet Bond

A bullet bond is a type of bond that pays interest only until maturity. The principal is repaid in a lump sum at maturity. Bullet bonds are often used by governments and corporations to finance long-term projects.

Bullet bonds are attractive to investors because they offer a fixed rate of return and a predictable cash flow. However, they can be risky if interest rates rise, as the investor will not receive any of the increased interest payments.

Bullet bonds are often used to finance long-term projects because they provide a stable source of funding. The government or corporation can budget for the interest payments, and they know that they will not have to repay the principal until maturity. This can be helpful for projects that have a long time horizon, such as infrastructure projects or research and development.

Bullet bonds can also be used to hedge against interest rate risk. If an investor believes that interest rates are going to rise, they can buy a bullet bond and lock in a fixed rate of return. This will protect them from the potential losses that could occur if interest rates rise.

However, bullet bonds can also be risky if interest rates fall. In this case, the investor will not receive any of the increased interest payments. This can lead to losses if the investor needs to sell the bond before maturity.

Overall, bullet bonds are a good investment option for investors who are looking for a fixed rate of return and a predictable cash flow. However, they can be risky if interest rates rise or if the investor needs to sell the bond before maturity.