Amortising Bond

An amortising bond is a debt instrument where the principal repayment is spread across regular periodic payments throughout the bond's life, rather than being repaid as a single lump sum at maturity. Each payment the investor receives contains both an interest component and a partial return of principal, reducing the outstanding balance progressively over time. This structure is commonly seen in securitised instruments—like mortgage-backed securities and asset-backed securities—where the underlying loans (home loans, auto loans) amortise over their tenure. Amortising bonds carry reinvestment risk, as the returned principal must be reinvested at prevailing market rates that may be lower than the original coupon.