Retractable Bond


DEFINITION of 'Retractable Bond'

A bond that features an option for the holder to force the issuer to redeem the bond before maturity at par value. An investor may choose to shorten the maturity on a bond because of market conditions or if he or she requires the principal sooner than expected.

BREAKING DOWN 'Retractable Bond'

For example, a company might issue 20-year retractable bonds to the market. This means the investor who buys the bond from the issuer has the right to receive the par value or face value of the bond at any time before maturity. If the investor exercises the right to retract, then he or she will forgo the rest of the coupon payments on the bond. An investor might exercise this option due to unfavorable market conditions such as a rise in interest rates. An increase in interest rates would translate into lower bond prices. As a result, investors may want to switch to higher-yielding bonds.

  1. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  2. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Par Value

    The face value of a bond. Par value for a share refers to the ...
  5. Exercise

    To put into effect the right specified in a contract. In options ...
  6. Extendable Bond

    A long-term debt security that includes an option to lengthen ...
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