Bullet Bond
A bullet bond is a fixed income instrument that pays periodic interest coupons throughout its term and returns its entire principal in a single payment at maturity, with no scheduled amortization or early redemption provisions — a structure that is the standard form for U.S. Treasury notes, most investment-grade corporate bonds, and many municipal bonds.
The term bullet refers to the single principal repayment that arrives at the end of the bond's life like a bullet, as opposed to gradual amortization spread over multiple periods. The overwhelming majority of bonds traded in the U.S. capital markets use this structure: the issuer pays semi-annual coupons and repays face value at maturity, with no reduction in principal balance during the bond's life.
Bullet bonds carry higher duration than comparable-maturity amortizing bonds because the entire principal is outstanding for the full term and returned only at the end. For a 10-year bullet bond paying a 5% semi-annual coupon, the modified duration is typically around 7 to 8 years, meaning the bond's price will decline roughly 7-8% for every 1 percentage point increase in yields. The concentration of cash flows at maturity amplifies interest rate sensitivity relative to structures that return principal earlier.
For investors, bullet bonds offer simplicity and predictability. The income stream is constant and well-defined; the maturity date is certain (absent a call provision); and reinvestment decisions are deferred entirely to maturity rather than requiring ongoing management of returned principal. Many retail investors building bond ladders favor bullet bonds precisely because each rung of the ladder has a known maturity date and principal return.
From an issuer's perspective, bullet maturity concentrates refinancing risk. A corporation with a large bullet bond maturing must access capital markets for a lump-sum refinancing at whatever interest rate environment prevails at that time. Companies with many large bullet maturities in a short window face meaningful refinancing cliff risk. The 2008 financial crisis highlighted this vulnerability: companies with near-term bullet maturities struggled to refinance at acceptable rates as credit markets seized up.
Many bullet bonds carry call provisions — allowing issuers to redeem the bond before maturity — which modifies the pure bullet structure. Non-call bullet bonds, which guarantee the principal repayment date regardless of interest rate movements, trade at tighter spreads than callable bonds of equivalent credit quality, reflecting the value investors place on the certainty of the maturity date.