Puttable Bond
What Is a Puttable Bond?
A puttable bond is a type of bond that gives the bondholder the right to sell the bond back to the issuer at a predetermined price before the bond reaches maturity.
This feature provides investors with additional protection if interest rates rise or if market conditions change.
Why It Matters
Puttable bonds offer investors more flexibility compared to traditional bonds. If market interest rates increase, the investor may choose to sell the bond back to the issuer and reinvest the money at a higher rate.
Because of this added protection, puttable bonds may offer slightly lower interest rates than similar bonds without this feature.
How Puttable Bonds Work
A puttable bond includes a put option, allowing investors to sell the bond back to the issuer under specific conditions.
The bond contract specifies:
- when the put option can be exercised
- the price the issuer will pay
- the maturity terms
This option protects investors from certain market risks.
Puttable Bond vs Callable Bond
- Puttable bonds allow investors to sell the bond early.
- Callable bonds allow issuers to repay the bond early.
FAQs About Puttable Bonds
Why do investors like puttable bonds?
They offer flexibility if interest rates rise.
Do puttable bonds pay lower interest?
Sometimes, because they include additional investor protection.
Who issues puttable bonds?
Corporations or governments may issue them.
Related Terms
