Bonds that allow the initial interest rates to be adjusted on specific dates in order that the bonds trade at the value they had when they were issued.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A bond that, on designated days, increases its coupon rate to bring its market value back to its original value. For example, suppose a bond is issued with a price of $1,000 at a coupon of 5%. If the bond's price declines for any reason to $900 by the first designated day, the coupon rate is increased to 7% or whatever percentage will bring the price back up to $1,000. Reset bonds are structured this way to protect bondholders' investment, but they can create hardship for the issuer. The extra coupon rate has been known to cause an issuer to go into bankruptcy.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved