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Perpetual bond, which is also known as a Perpetual or just a Perp, is a bond with no maturity date.[1] Therefore, it may be treated as equity, not as debt. Issuers pay coupons on Perpetual bonds forever, and they do not have to redeem the principal. Perpetual bond cash flows are, therefore, those of a perpetuity.
Examples of perpetual bonds are consols issued by the UK Government. Most perpetual bonds issued nowadays are deeply subordinated bonds issued by banks. The bonds are counted as Tier 1 capital, and help the banks fulfil their capital requirements. Most of these bonds are callable, but the first call date is never less than five years from the date of issue—a call protection period.
Pricing
Perpetual bonds are valued using the formula: where is Annual Coupon Interest on a bond and is an expected yield for maximum term available. [2]
References
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External links
- "Perpetual debt in favour, but yields may fall", LiveMint.com, July 7, 2007