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.

RELATED TERMS
  1. Extendable Bond

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

    The period of time during which an investor who owns an extendable ...
  3. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  4. Pull To Par

    The movement of a bond's price toward its face value as it approaches ...
  5. Bond Discount

    The amount by which the market price of a bond is lower than ...
  6. Dollar Price

    The percentage of par, or face value, at which a bond is quoted. ...
Related Articles
  1. Investing

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  2. Investing

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  3. Financial Advisor

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
  4. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  5. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  6. 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.
  7. Financial Advisor

    Simple Math for Fixed-Coupon Corporate Bonds

    A guide to help to understand the simple math behind fixed-coupon corporate bonds.
RELATED FAQS
  1. What happens to the price of a premium bond as it approaches maturity?

    Learn how bonds trade in regard to premiums and discounts, and how bond prices shift closer to par value as bonds approach ... Read Answer >>
  2. 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 >>
  3. Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate ... Read Answer >>
  4. What types of fees apply to checking accounts?

    Learn about the difference between a bond's coupon rate and its yield to maturity, and how the par value, coupon rate and ... Read Answer >>
  5. What does it mean when a bond has a put option?

    A put option on a bond is a provision that allows the holder of the bond the right to force the issuer to pay back the principal ... Read Answer >>
Hot Definitions
  1. Restricted Stock Unit

    Compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock ...
  2. Operating Ratio

    A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
  3. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  4. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  5. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center