What is: Perpetual Bond

What is: Perpetual Bond

A perpetual bond, also known as a perpetuity or consol bond, is a type of bond that has no maturity date. This means that the issuer of the bond is not required to repay the principal amount to the bondholder at any specific time. Instead, the issuer pays periodic interest payments to the bondholder indefinitely.

Perpetual bonds are often issued by governments and corporations as a way to raise capital without the need to repay the principal amount. These bonds are attractive to investors because they provide a steady stream of income without the risk of the bond maturing and the principal not being repaid.

One key feature of perpetual bonds is that they have no fixed interest rate. Instead, the interest payments are typically fixed as a percentage of the bond’s face value. This means that the amount of interest paid to the bondholder remains constant, regardless of changes in market interest rates.

Investors in perpetual bonds face the risk of inflation eroding the value of their investment over time. Since the bond does not mature, the investor is reliant on the issuer to continue making interest payments for the indefinite future.

Perpetual bonds are considered a form of equity rather than debt, as the issuer is not obligated to repay the principal amount. This means that the bondholder has a lower claim on the issuer’s assets in the event of bankruptcy compared to traditional bondholders.

Despite the risks associated with perpetual bonds, they can be a valuable addition to an investor’s portfolio. The steady income stream provided by these bonds can help diversify a portfolio and provide stability in times of market volatility.

Overall, perpetual bonds offer a unique investment opportunity for investors seeking a steady income stream without the need to worry about the bond maturing. However, it is important for investors to carefully consider the risks associated with these bonds before investing.