Collateral Trust Bond Law and Legal Definition

This is a bond which represents a debt secured by depositing another security with a trustee. A collateral trust bond is a long term corporate bond secured by pledging and depositing other companies’ mortgage bonds held by the corporation. Interest received on these collateral trust bonds is lower than that received on the bonds pledged. A sinking fund is formed by the surplus in order to redeem the collateral trust bonds. Such bonds are often issued by holding companies by pledging the stock of a subsidiary company.