Definition of Perpetual Bond

Financial Terms Beginning with P

What is a Perpetual Bond

A perpetual bond is a bond that will pay interest over the life of the bond and since a perpetual bond has no maturity date, the interest will continue to be paid forever or in perpetuity. Perpetual bonds are also known as perps or perpetuities.

History of Perpetual Bonds

The oldest known perpetual bond, which still pays interest, was issued in 1648 by a Dutch company. Stichtse Rijnlanden, a Dutch water board issued the bond to finance improvements to a local dike system. Originally issued to Niclaes de Meijer, the bond is currently owned by Yale.

The emergence and issuance of perpetual bonds was widely credited to the British government in the 18th century. In 1751, UK consols or consolidated annuities were first introduced at a 3.5% interest rate and they have been in circulation ever since, although the interest rates have varied. In 2015, the British government, under Section 124 of Finance Act 2015, decided to redeem all consols in circulation. The first US Government consols were issued in the 1870s.

How to Calculate the Current Yield of a Perpetual Bond

To calculate the current yield, you need to know the face value of the bond, the fixed-interest rate and the price paid for the bond. To calculate the annual interest payment, multiply the face value of the bond by the fixed-interest rate. Divide the annual interest payment by the price paid for the bond and then multiply times 100. This will give you the current yield on a perpetual bond.

For example, let's assume a perpetual bond has a face value of $100 and a fixed-interest rate of 3%. We will also assume the price of the bond is 96.75. Based upon this information, the annual interest payment is $3 ($100 x 3%) and the current yield is 3.1% (($3 / 96.75) x 100).

Effects of Interest Rate Changes on the Value of a Perpetual Bond

Since the interest rate of a perpetual bond is fixed, changes in interest rates will change the value of the perpetual bond. When interest rates go up, the value of a perpetual bond will go down and the current yield of the perpetual bond will go up, generally following the interest rate change, assuming no other changes in the bond credit quality.

GlobEx Markets Financial Dictionary of Terms, Phrases and Concepts

The GlobEx Markets financial dictionary is a reference resource that provides the definitions and explanations of various financial terms, phrases and concepts that are used in international finance and global investing. It includes a broad range of financial terms, such as those related to stocks, bonds, currencies, commodities, options, futures, crypto and much more.

A financial dictionary can be useful for anyone who wants to learn more about finance and investing, or who works in the financial industry. It can help clarify the meaning of technical terms and the language used in financial publications, reports and other sources.

Benefits of the GlobEx Markets Financial Dictionary

There are several benefits to using the GlobEx Markets financial dictionary, including:

  • Clarifying Technical Terminology: The financial world is filled with complex terms and language that can be confusing to those who are not familiar with it. A financial dictionary can help clarify the meaning of technical terms and make them more understandable.
  • Improving Financial Literacy: By learning the meaning of financial terms, phrases and concepts, you can improve your overall financial literacy and gain a better understanding of the workings of the financial world.
  • Enhancing Communication: A financial dictionary can help improve communication among financial professionals by ensuring that everyone is using the same terminology, phrases and concepts.
  • Supporting Research: When conducting financial research or analysis, a financial dictionary can be a valuable resource for identifying and understanding key terms, phrases and concepts.
  • Facilitating Decision-Making: Understanding financial terms, phrases and concepts can help you make better-informed financial decisions, whether you are managing your own finances or making decisions on behalf of an organization.

Overall, the GlobEx Markets financial dictionary can help improve your understanding of international finance and global investing. It is a valuable tool for anyone who works in the financial industry or who wants to improve their financial literacy.

Related Investment Terms

Methuselah Bond

Sovereign Bond

US Government Bond

View of NYC between the Brooklyn Bridge and Manhattan Bridge
New York, New York