Reverse Convertible Bond - RCB


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.

BREAKING DOWN '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%.

  1. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  2. Derivative

    A security with a price that is dependent upon or derived from ...
  3. Term To Maturity

    The remaining life of a financial instrument. In bonds, it is ...
  4. Issuer

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

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

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