The put date: miss it and you are left holding a different bond
2 min · intermediate
Automated material · TradeAlmanac editorial deskPrepared by a language model from our stored data and checked by an editor.
Содержание · 5
A put date is an option, written into the terms of the issue, to present the bond early for redemption at a price known in advance.
Why the issuer offers it
It lets them issue a long bond without fixing the coupon for the whole term. On the put date the issuer announces a new coupon for the next period; those who disagree present the bond for redemption.
Why it is dangerous for a holder
The new coupon may be set at a token level — formally not a default but a term of the issue. An investor who missed the presentation window is left in the bond on unattractive terms for years.
Two kinds
A put option is the holder's right to present the bond. That is the case described above.
A call option is the issuer's right to redeem the bond early. Here the decision is theirs, and they use it when it suits them: usually when rates fall, so they can refinance cheaper.
How it changes the yield calculation
For a bond with a put date, yield is computed to that date rather than to maturity: that is when certainty arrives. Yield to maturity on such a bond is a number resting on an unknown future coupon.
What to check before buying
Whether there is a put date, when it falls, whose option it is, and how the displayed yield was computed. Those four points change the meaning of every other figure on the issue.
Related: Yield to maturity: the only honest number a bond has and How to choose a bond, step by step.
Prepared by a language model from our stored data and checked by an editor.
How we use language modelsSimilar articles
- The government bond market: who is in it and whyThe finance ministry borrows, banks and funds buy, and a private investor gets the reference point for everything else.
- A checklist before buying a bondEight parameters of an issue, any of which changes the meaning of the yield you were shown.
- A bond ladder: a way of not guessing ratesA portfolio of issues with staggered maturities removes the need to predict where rates are heading.
- Credit ratings: what they assess and why they are not a guaranteeAn agency's opinion on an issuer's ability to pay its debts. A useful reference and a poor excuse for not thinking.