DEFINITION of 'Bull Bond'

A bond that is likely to increase in value in a bull market, when interest rates are declining. Most bonds tend to increase in value when interest rates decline, but bull bonds refer to types of bonds that do especially well in this environment.

BREAKING DOWN 'Bull Bond'

A common example of a bull bond is the principal only (PO) strip mortgage-backed security. Whereas most bonds will increase in value in a declining rate market, mortgage-backed securities perform especially well. POs are mortgage securities created by separating principal payments from interest payments collected in a pool of mortgage securities. The principal payments are then combined to form a mortgage pool. PO mortgage securities do well in a falling rate market because mortgage holders refinance their loans at lower interest rates. Investors are repaid their original investment more quickly, increasing the rate of return for the mortgage-backed security.



RELATED TERMS
  1. Principal Only Strips - PO

    A type of fixed-income security where the holder is only entitled ...
  2. Mortgage Bond

    A bond secured by a mortgage on one or more assets. These bonds ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Guaranteed Mortgage Certificate ...

    A bond backed by a pool of mortgages. These bonds are issued ...
  5. Consolidated Mortgage Bond

    A bond that consolidates the issues of multiple properties. If ...
  6. Bond Yield

    The amount of return an investor will realize on a bond. Several ...
Related Articles
  1. Insights

    How Interest Rates Affect the Housing Market

    Understand how rate changes can affect home prices and learn how you can keep up.
  2. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  3. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  4. Investing

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  5. Investing

    Key Strategies To Avoid Negative Bond Returns

    It is difficult to make money in bonds in a rising rate environment, but there are ways to avoid losses.
  6. Investing

    Find Security In Covered Bonds

    Find out about a safe investing alternative that could have prevented the subprime meltdown.
  7. Investing

    5 Reasons to Invest in Municipal Bonds When the Fed Hikes Rates

    Discover five reasons why investing in municipal bonds after the Fed hikes interest rates, and not before, can be a great way to boost investment income.
  8. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  9. Investing

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  10. Investing

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
RELATED FAQS
  1. How does a bull market in stocks affect the bond market?

    Take a deeper look at the relationship between the bond market and equities, and see what might happen to bonds during the ... Read Answer >>
  2. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  3. How does face value differ from the price of a bond?

    Discover how bonds are traded as investment securities and understand the various terms used in bond trading, including par ... Read Answer >>
  4. Do long-term bonds have a greater interest rate risk than short-term bonds?

    The answer to this question lies in the fixed income nature of bonds and debentures, often referred to together simply as ... Read Answer >>
  5. What causes a bond's price to rise?

    Learn about factors that influence the price of a bond, such as interest rate changes, credit rating, yield and overall market ... Read Answer >>
Hot Definitions
  1. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  2. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  3. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  4. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Four Percent Rule

    A rule of thumb used to determine the amount of funds to withdraw from a retirement account each year. The four percent rule ...
Trading Center