Bunny Bond

Bunny Bond

A type of bond that offers investors the option to re-invest coupon payments back into additional bonds with the same coupon and maturity. Also known as "multiplier bond" or "guaranteed coupon reinvestment bond."

Notes:

Bunny bonds offer an effective method to protect against reinvestment risk, which arises from the possibility of future interest rates dropping. With a normal bond, when a coupon is paid, investors are exposed to the risk of having to reinvest their coupons at a lower interest rate. If an investor chooses to re-invest all cash coupons back into the bond he or she is currently holding, it behaves similarly to a zero-coupon bond because there are be no cash flows until maturity.

See also: Bond, Reinvestment Risk, Zero Coupon Bond