What Is a Serial Bond?

K.C. Bruning
K.C. Bruning
Man climbing a rope
Man climbing a rope

A serial bond is an investment which consists of multiple bonds that mature at different dates. It is issued at a total amount which is usually divided evenly for each period of maturity. The purpose of this kind of investment is to provide a regular source of income over a certain period. They are also known as installment bonds.

Though a serial bond is composed of several parts, all bonds associated with it are issued at the same time. The price is typically calculated based on the anticipated value of the investment when the final bond in the group has matured. In essence, quoting by yield instead of cost is believed to provide a more accurate assessment of value.

While the base price for each portion of a serial bond is usually the same, the value of each bond can vary over time. With some investments this partly depends upon the amount of the coupon payment. Coupons are regular interest payments that the investor must make during the life of a bond. These payments depend upon the coupon rate, a figure which is determined by adding the number of annual payments and dividing them by the face value of the bond. There are also some kinds of serial bonds, known as zero-coupon bonds, which do not have these payments.

Though a serial bond will ultimately yield less than a single bond of the same value, it will also have lower interest payments. This is because the value of the investment will change as each bond matures and the investor receives payment. For example, a ten-year series of bonds may require interest payments on the full amount for the first five years of the bond issue, but that amount will drop with each year as individual bonds reach maturity.

One of the most common uses of the serial bond is to fund a specific project. It is especially popular with construction, such as for residential developments. If the debt associated with a project is at a consistent level, then the investment can provide an income stream that is predictable, reliable and sufficient to cover costs.

The timing of payment is another reason that serial bonds are popular for funding specific projects. Staggering payment over several years enables the builder, government agency or other project manager to benefit from a steady source of funding as it gets to the point where it is making income from the finished project. If the maturity dates are timed correctly, it will also have funds to pay off debts when the project has been completed.

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