A mortgage debt instrument that features long-term coupons but with short maturity. Typically, super sinkers are housing bonds (single-family housing bonds). If homeowners prepay their mortgages, bondholders would immediately receive their principal back. A super sinker provides call protection for the other term bonds in the issue because they prepaid mortgage loans are applied to a specific term bond or bonds before any maturity. Therefore, super sinkers may have an actual lifespan of as low as three to five years, even though their yield is only slightly lower than bonds bearing longer maturities. These bonds expose bondholders to the so-called prepayment risk because of the possibility of the borrowers repaying faster than scheduled.
Finance
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