Fixed income

Hybrid bonds

Hybrid bonds are debt instruments that combine characteristics of both bonds and equities, offering features like fixed income payments while incorporating certain risks typically associated with equity. They are considered subordinate to traditional bonds in the capital structure, meaning they carry a higher risk of loss in the event of issuer default but offer higher yields as compensation for this increased risk.


Types of hybrid bonds

Hybrid bonds are commonly issued by financial institutions and corporations to strengthen their capital base. They may include features such as:

  • Perpetual bonds: Bonds with no fixed maturity date, where the issuer can defer interest payments under certain conditions.

  • Convertible bonds: Bonds that can be converted into a specified number of the issuer's shares under predefined circumstances.

  • Callable bonds: Bonds that give the issuer the option to redeem the bond before maturity.


Also read

Investment grade bonds Subordinated bonds Creditworthiness



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