Put Bond

Written By
Paul Tracy
Updated November 4, 2020

What is a Put Bond?

A put bond permits the bond holder to force the issuer to repurchase the security before maturity

How Does a Put Bond Work?

In bond financing, the issuer sells bonds at a coupon rate (i.e., the interest rate payable on the bonds to the bond buyer) for a specific period of time. The issuer knows that they will have the principal and pay interest on the principal for the term of the bonds. There are two types of redemption options for bonds before maturity:  

A call option allows the issuer to redeem the bonds, repaying principal and accrued interest to bond buyer until the time of the call.  A call usually favors the issuer, allowing the issuer to refinance or payoff bonds that are issued at a high interest rate.  

A put option on the bonds favors the bond buyer in circumstances where the bonds may be yielding a low interest rate during a period when interest rates are rising.  A put option gives the bond buyer the right to force the issuer to repurchase the bonds.  A put option is usually structured with a series of repurchase dates during the term of the bond.

Why Does a Put Bond Matter?

A put bond favors the bond buyer, giving them flexibility and liquidity in the bond market.  

Also, putable bonds are particularly popular in a variety of variable interest rate structures. For example, variable rate demand obligations (VRDO) are "putable" bonds with a variable interest rate. The liquidity of this type of bond has the effect of allowing the bond to be treated as a short-term investment for the buyer and long-term debt (although with a variable interest rate) for the issuer.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Put Bond.
Be the first to ask a question

If you have a question about Put Bond, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Put Bond, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Put Bond

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms