Question

What interest rate movement is most likely to trigger the exercise of a putable bond,  How does that affect the return of bond investors?

Answer 1

Putable bonds are normal bonds with putable option features embedded in them. When interest rate in market rises, then the putable option in the bond gets triggered and the investor can surrender the bond to the issuer at the strike price.

The return of the putable bond investor can't go below the strike price of the putable option of the bond. So if the price of a similar ordinary bond, having no putable option reaches to say 97 and the strike price on the putable bond is 100, then the putable bond's price can't go below 100. So this way, the investor profits, as unlike other option free bonds in the market, its price can't go below the strike price.

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