Step-Up Bond

Definition of 'Step-Up Bond'


A bond that pays an initial coupon rate for the first period, and then a higher coupon rate for the following periods. A step-up bond is one in which subsequent future coupon payments are received at a higher, predetermined amount than previous or current periods. These bonds are often purchased by individuals or portfolio managers who wish to hold fixed income securities with similar features to TIPS, but with a higher coupon.

Investopedia explains 'Step-Up Bond'


These bonds are known as step-ups because quite literally the coupon "steps up" from one period to another. For example, a five-year bond may pay a 4% coupon for the first two years of its life and a 6% coupon for the final three years. Such a bond would most likely offer a coupon below current rates at the time of inception, compensating the seller for offering higher coupons in coming periods.


Filed Under: ,

comments powered by Disqus
Hot Definitions
  1. Direct Consolidation Loan

    A loan that combines two or more federal education loans into a single loan. A Direct Consolidation Loan allows the borrower to make a single monthly payment. The loan is facilitated by the U.S. Department of Education and does not require borrowers to pay an application fee.
  2. Through Fund

    A type of target-date retirement fund whose asset allocation includes higher risk and potentially higher return investments "through" the fund's target date and beyond.
  3. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold or disposed of first.
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version of success in a society where upward mobility is possible for everyone. The American dream is achieved through sacrifice, risk-taking and hard work, not by chance.
  5. Texas Ratio

    A ratio developed by Gerald Cassidy and other analysts at RDC Capital Markets to measure the credit problems of particular banks or regions of banks. The Texas ratio takes the amount of a bank's non-performing assets and loans, as well as loans delinquent for more than 90 days, and divides this number by the firm's tangible capital equity plus its loan loss reserve.
  6. Amortized Bond

    A financial certificate that has been reduced in value for records on accounting statements. An amortized bond is one that is treated as an asset, with the discount amount being amortized to interest expense over the life of the bond. If a bond is issued at a discount - that is, offered for sale below its par (face value) - the discount must be treated either as an expense or it can be amortized as an asset.
Trading Center