Rate Trigger
 |
Definition of 'Rate Trigger'A sizeable decline in interest rates that may trigger or cause companies to call in bonds that otherwise pay high coupon or interest rates. Because these bonds are being called before their initial expiration date, theoretically, bondholders can expect to receive a premium or additional sum for their securities. |
 |
Investopedia explains 'Rate Trigger'As an example, if a company that issues bonds containing a coupon or interest rate of 12% was to see the prevailing interest rate to drop to 7%, it may exercise its option to "call", or buy back these bonds from the debt holders, enabling the company to borrow money at a much lower rate than when the security was first issued. The company, however, must pay bondholders a premium, or an additional amount over and above the bond's par value in order to repurchase the debt. The fluctuation in interest rates acted as the trigger for such an action. |
Related Definitions
Articles Of Interest
-
The Advantages Of Bonds
Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment. -
Bond Basics Tutorial
Investing in bonds - What are they, and do they belong in your portfolio? -
Perpetual Bonds: An Overview
A perpetual bond makes interest payments to the investor forever. This type of bond holds a certain appeal to both the issuer and buyer. -
Introduction To STRIPS
STRIPS provide an alternative form of bond for fixed-income investors who need definite cash flows at specific times. Read the article to find out how. -
The Wonders Of Convertible Bonds
Ever wondered what exactly a convertible bond does? Read the features of a convertible bond and learn how important the conversion factor is to you as an investor. -
The Basics Of The T-Bill
The U.S. government has two primary methods of raising capital. One is by taxing individuals, businesses, trusts and estates; and the other is by issuing fixed-income securities that are backed ... -
Introduction To Commercial Paper
Commercial paper is a short-term instrument that can be a viable alternative for retail fixed-income investors looking for a better rate of return on their money. -
All About Zero Coupon Bonds
Zero-coupon bonds are bonds that do not make any interest payments (which investment professionals often refer to as the "coupon") until maturity. For investors, this means that if you make an ... -
Know Your Cost Basis For Bonds
Nobody likes taxes, but tax reporting is an inevitable and unavoidable part of investing. If you buy stock, determining your costs basis is a slightly frustrating but fairly straightforward exercise. ... -
Analyzing The Best Retirement Plans And Investment Options
Understanding the various retirement investments - from annuities to 401(k)s and everything in between - is crucial to reaching your retirement goals. Here, we examined many of the popular investments ...
Free Annual Reports