Extendable Bond

AAA

DEFINITION of 'Extendable Bond'

A long-term debt security that includes an option to lengthen its maturity period. Depending on the specific terms of the extendable bond, the bond holder and/or bond issuer may have one or more opportunities to defer the repayment of the bond's principal, during which time interest payments continue to be paid. Additionally, the bond holder or issuer may have the option to exchange the bond for one with a longer maturity, at an equal or higher rate of interest. Because these bonds contain an option to extend the maturity period, a feature that adds value to the bond, extendable bonds sell at a higher price than non-extendable bonds.


Also referred to as an extendable note.

INVESTOPEDIA EXPLAINS 'Extendable Bond'

Investors purchase extendable bonds in order to take advantage of changing interest rates without assuming the risk involved with a long-term bond. An extendable bond is the opposite of a retractable bond. A retractable bond includes an option to redeem the bond earlier than its original maturity period. Both extendable and retractable bonds are intended to provide investors with the flexibility to respond to changing economic conditions, and to take advantage of movements in interest rates.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Debt Security

    Any debt instrument that can be bought or sold between two parties ...
  3. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  4. Issuer

    A legal entity that develops, registers and sells securities ...
  5. Debt Fund

    An investment pool, such as a mutual fund or exchange-traded ...
  6. Retractable Bond

    A bond that features an option for the holder to force the issuer ...
RELATED FAQS
  1. Why do interest rates tend to have an inverse relationship with bond prices?

    At first glance, the inverse relationship between interest rates and bond prices seems somewhat illogical, but upon closer ... Read Full Answer >>
  2. Which asset classes are the most risky?

    Equities is the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the ... Read Full Answer >>
  3. How do you find accrued interest on a bond?

    A bond is a debt instrument issued by a company, government agency or municipality to raise money. Interest payments are ... Read Full Answer >>
  4. What are the main disadvantages of fixed income securities?

    Fixed-income securities attract investors because they provide guaranteed returns in the form of fixed, regular cash payments. ... Read Full Answer >>
  5. Which factors most influence fixed income securities?

    The main factors that impact the prices of fixed income securities include interest rate changes, default or credit risk, ... Read Full Answer >>
  6. Does the S&P 500 index include dividends?

    The S&P 500 index includes dividends. As of March 2015, the dividend yield for the S&P 500 was 1.91%. This is below ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  2. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  3. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  4. Bonds & Fixed Income

    Asset Allocation In A Bond Portfolio

    An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
  5. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  6. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  7. Mutual Funds & ETFs

    Pros and Cons: Preferred Stock ETFs vs. Bond ETFs

    A look at the differences between preferred stock ETFs and bond ETFs and when you should invest in one over the other.
  8. Bonds & Fixed Income

    Understanding Negative Rates Of Europe's Central Banks

    We are currently seeing negative central bank deposit rates and government and corporate bonds with negative yields, but there are investors buying into these securities. Why?
  9. Economics

    The Fed's Impact On Emerging Markets

    Higher US interest rates could make it more expensive for emerging market borrowers to service their debt commitments.
  10. Investing

    What’s The Essence Of Smart Beta In Fixed Income?

    In essence, smart beta strategies seek to re-write index rules to capture factors, such as value, quality, or low volatility, in their stock portfolios.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center