Retractable Bond

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Par Value

    The face value of a bond. Par value for a share refers to the ...
  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. Defeased Securities

    Securities that have been secured by another asset, such as cash ...
  5. Exercise

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

    The interest rate stated on a bond when it's issued. The coupon ...
Related Articles
  1. Investing

    What does it mean when a bond is selling ...

  2. Investing

    Why do interest rates tend to have an ...

  3. Bonds & Fixed Income

    Advanced Bond Concepts

  4. Retirement

    Bond Basics Tutorial

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center