Putable Bond

A putable bond is a bond that includes an embedded put option. The put option is an investor option—that is, the right to exercise the option is at the discretion of the bondholder. The put provision allows the bondholders to put back the bonds to the issuer prior to maturity, usually at par. This usually happens when interest rates have risen and higher-yielding bonds are available.

Similar to callable bonds, most putable bonds include lockout periods. They can be European or, rarely, Bermudan style, but there are no American-style putable bonds.

Reference

2018 CFA Program Level II Volume 5 Fixed Income and Derivatives.

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