Reverse Convertible Bond - RCB

AAA

DEFINITION of 'Reverse Convertible Bond - RCB'

A bond that can be converted to cash, debt or equity at the discretion of the issuer at a set date. The bond contains an embedded derivative that allows the issuer to put the bond to bondholders at a set date prior to the bond's maturity for existing debt or shares of an underlying company. The underlying company need not be related in any way to the issuer's business. These types of bonds usually have shorter terms to maturity and higher yields than most other bonds because of the risk involved for investors, who may be forced to redeem their bonds for securities in a company that have, or are expected to, decrease substantially in value.

INVESTOPEDIA EXPLAINS 'Reverse Convertible Bond - RCB'

Reverse convertible bonds are popular with European-based issuers. An example of a reverse convertible bond is a bond that has a period to maturity of two years and allows the bond's issuer - say, a European bank - to redeem the bond at its discretion in shares of a given blue chip by the maturity date. These bonds have high yields of around 15-20%.

RELATED TERMS
  1. Term To Maturity

    The remaining life of a financial instrument. In bonds, it is ...
  2. Put

    An option contract giving the owner the right, but not the obligation, ...
  3. Derivative

    A security whose price is dependent upon or derived from one ...
  4. Yield

    The income return on an investment. This refers to the interest ...
  5. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  6. Issuer

    A legal entity that develops, registers and sells securities ...
Related Articles
  1. Convertible Bonds: Pros And Cons For ...
    Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For ...

  2. What is the difference between convertible ...
    Options & Futures

    What is the difference between convertible ...

  3. Can private corporations issue convertible ...
    Investing

    Can private corporations issue convertible ...

  4. Stock Safety: Top 3 Ways to Limit Your ...
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

Hot Definitions
  1. 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 ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center