Perpetual Bond
Quick Definition
A bond with no maturity date that pays coupon interest indefinitely, valued primarily on its yield relative to prevailing rates.
Key Takeaways
- No maturity date — pays coupon interest indefinitely
- Price = Annual Coupon / Required Yield
- Modern perpetuals are primarily issued by banks as regulatory capital
- Most include call provisions allowing early redemption
What Is Perpetual Bond?
A perpetual bond (also called a "perp" or consol) is a fixed-income security with no maturity date, meaning it pays interest forever without ever returning the principal. The price of a perpetual bond is theoretically the annual coupon divided by the required yield (Price = Coupon / Yield). Perpetual bonds were historically issued by governments — British consols dating to the 18th century are the most famous example. Today, perpetual bonds are primarily issued by banks and financial institutions as Additional Tier 1 (AT1) capital to meet regulatory requirements. These modern perpetuals typically include call provisions allowing the issuer to redeem them after a set period and may have coupon reset mechanisms.
Perpetual Bond Example
- 1A perpetual bond paying $50 per year with a required yield of 5% would be priced at $50/0.05 = $1,000
- 2European banks issue AT1 perpetual bonds to meet Basel III capital requirements, often with 5-year call dates
Related Terms
Coupon Rate
The annual interest rate stated on a bond, expressed as a percentage of face value, that determines the periodic coupon payments.
Callable Bond
A bond that gives the issuer the right to redeem it before maturity at a specified price, typically when interest rates fall.
Bond Yield
The return an investor earns from a bond, expressed as an annual percentage, which can be measured in several ways including current yield and yield-to-maturity.
Current Yield
A bond's annual coupon payment divided by its current market price, providing a simple snapshot of income return.
Bond
A fixed-income debt security where investors loan money to an issuer in exchange for regular interest payments and return of principal at maturity.
Treasury Bond (T-Bond)
A long-term U.S. government debt security with a maturity of 20 or 30 years, paying semiannual coupon interest.
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