Putable Bond
Quick Definition
A bond that gives the holder the right to sell the bond back to the issuer at par value on specified dates before maturity.
Key Takeaways
- Gives bondholders the right to sell back at par on specified dates
- Protects against rising interest rates and falling bond prices
- Typically offers lower yields than non-putable bonds
- The mirror image of a callable bond — benefits investors, not issuers
What Is Putable Bond?
A putable bond contains an embedded put option giving the bondholder the right — but not the obligation — to force the issuer to repurchase the bond at par value on specified dates. This feature protects investors against rising interest rates: if rates increase and the bond's market value falls below par, the holder can "put" the bond back at face value rather than suffering a capital loss. Because this option benefits bondholders, putable bonds typically offer lower coupon rates than comparable non-putable bonds. The put option is essentially the mirror image of a call option — calls benefit issuers while puts benefit investors. Putable bonds are less common than callable bonds in the market.
Putable Bond Example
- 1An investor holds a putable bond at par ($1,000) with a put date in 2028 — if rates rise and the bond drops to $920, they can sell it back at $1,000
- 2A 10-year putable bond with a 4% coupon might yield 30–50 bps less than a comparable non-putable bond
Related Terms
Callable Bond
A bond that gives the issuer the right to redeem it before maturity at a specified price, typically when interest rates fall.
Callable vs Putable Bonds
Callable bonds give the issuer the right to redeem early, while putable bonds give the bondholder the right to sell back early — opposing options that benefit different parties.
Embedded Option
An option feature built into a bond that gives either the issuer or the bondholder certain rights, affecting the bond's pricing and risk profile.
Par Value
The face value of a bond, typically $1,000, representing the amount repaid to the bondholder at maturity.
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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