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What is a Perpetual Bond

Definition of  Perpetual Bonds 

Certificate of a Purchased Perpetual Bond

Perpetual bonds are bonds that don’t have a date of maturity. They cannot be redeemed but payout a stable interest till the instrument lasts. Some of the few prominent perpetual bonds are those issued by the British Treasury to compensate smaller amounts used to finance the 1814 Napoleonic Wars. People in the U.S. deem that the government can issue perpetual bonds to become more efficient, as it aids in evading refinancing costs connected to the issue of bonds with a definite maturity date.

Perpetual bonds are often called ‘consol’

Perpetual bonds are bonds with no maturity date and to compensate for that they pay higher rate compare to other bonds with identical credit profile. In fact they are not really popular it is tough to find many perpetual bond issues. You will find more dollar denomination perpetual bond issues as compared to rupee ones.

Typically the company issuing perpetual bonds decide on what to call them which suggests that they can either redeem the bond at a given time period like 5 or 10 years. Perpetual bond issues from Tata Steel came with an option that if they were not called within a particular time period then the issuer would pay an increased rate of interest on them. The bond was issued at 11.8%, and if it is not called by the company in 10 years then the coupon rate would augment by 300 basis points.

They have to be listed on the stock exchange, but some of them do not see any trading at all. It can be of some interest to institutional investors and pension funds but holds no value for retail investors.

There is hardly any situation where an investor will be wealthier with a few percentage points increase in interest income each year with the transaction that will never bring back their capital. It is not a good investment option.

Perpetual bonds can be good for companies and banks to raise cash and buttress their capital. Pension funds can also gain by locking on to high interest rates, and by redeeming their principal redeemed they anyway have to re-invest the amount in some other instrument. Perpetual bonds are in any way suitable for retail investors.


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