Perpetual Bond
Imagine a bond that never retires, just keeps paying you interest like clockwork, forever. That's a perpetual bond, also called a "perp." No set end date, just a steady stream of income for as long as the issuer and the world keep spinning.
What exactly is Perpetual Bond?
A perpetual bond is a type of bond that has no maturity date. This means that the issuer of the bond does not have to repay the principal amount of the bond to the investor at any point in time. As a result, perpetual bonds typically offer higher interest rates than bonds with maturity dates.
Perpetual bonds are often issued by governments or government-backed entities, as they have a long-term need for funding.
The value of the bond keeps changing like a stock, depending on two main factors:
- Interest rates: Lower rates make the bond worth more, while higher rates make it less valuable.
- Issuer's creditworthiness: If the issuer gets shaky, the bond value might drop too.
Key Features of Perpetual Bond
Here are some of the key features of perpetual bonds:
- No maturity date
- Higher interest rates than bonds with maturity dates
- Typically issued by governments or government-backed entities
- Can be risky, as the issuer may not be able to make the interest payments or may default on the bond
Types of Perpetual Bond
There are a few different types of perpetual bonds. The most common type is the fixed-rate perpetual bond, which pays a fixed interest rate to the investor each year. Another type of perpetual bond is the floating-rate perpetual bond, which pays an interest rate that is linked to a benchmark interest rate.
Perpetual bonds can be a risky investment, as the issuer may not be able to make the interest payments on the bond or may default on the bond altogether. However, they can also be a good investment for investors who are looking for a steady stream of income, as the interest payments on perpetual bonds are typically higher than those on bonds with maturity dates.
