DEFINITION of 'Bunny Bond'

A type of bond that offers investors the option to reinvest coupon payments into additional bonds with the same coupon and maturity.

Also known as "multiplier bond" or "guaranteed coupon reinvestment bond."

BREAKING DOWN 'Bunny Bond'

Bunny bonds are an effective way to protect against reinvestment risk, which arises from the possibility that interest rates will drop in the future. With a normal bond, investors are exposed to the risk of having to reinvest their coupons at a lower interest rate. If an investor chooses to reinvest all cash coupons back into the bond he is currently holding, it behaves similarly to a zero-coupon bond, as the investor receives no cash flow until maturity.

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