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. Maturity

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

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

    A legal entity that develops, registers and sells securities ...
  5. Yield

    The income return on an investment. This refers to the interest ...
  6. Maturity Date

    The date on which the principal amount of a note, draft, acceptance ...
RELATED FAQS
  1. Can private corporations issue convertible bonds?

    The first step to answering this question requires defining the term "private corporation". Many times, the term "private ... Read Full Answer >>
  2. What is the difference between convertible and reverse convertible bonds?

    The difference between a regular convertible bond and a reverse convertible bond is the options attached to the bond. While ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  2. Options & Futures

    The Perks of Trading Coffee Options

    As more people begin to trade coffee, we explain how coffee options work, who uses them, what drives valuations, and the risks and rewards.
  3. Trading Strategies

    Top Day Trading Instruments

    Day trading is an intense and often appealing activity. Investopedia provides the list of top financial instruments for day trading.
  4. Mutual Funds & ETFs

    Preferred Stock ETFs: Are They Right for You?

    Considering preferred stock ETFs? Here's a look at their pros and cons.
  5. Mutual Funds & ETFs

    PIMCO vs. BlackRock: Weighing Mega Fund Managers

    A look at the world's biggest bond manager and the world's largest asset manager.
  6. Mutual Funds & ETFs

    The ABCs of Mortgage-Backed Securities ETFs

    ETFs focused on mortgage-backed securities, or MBS, offer an opportunity to further diversify the fixed-income portion of your portfolio.
  7. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  8. Economics

    What Would Happen If Interest Rates Rise?

    This time around, while U.S. long-term yields have rebounded from their January lows, rates have generally been lower than where they ended 2014.
  9. Investing

    Strategies To Position Your Bond Portfolio

    Fixed income investors may not be able to see them all right now, but important trends are stirring on the investment horizon.
  10. Options & Futures

    The Fancy Way To Diversify Your Portfolio: Precious Metal Options

    A guide with strategies on how to invest or trade in precious metals by using options.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center