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Step-Up Bond


A bond (a variable interest bond) whose coupon payment starts to increase after an initial period. It pays an initial coupon rate for the initial period, and then a higher coupon rate for the periods that follow. The simplest form of a step-up bond is a one time step-up where interest rate is for one period and then steps up once to a higher level. Another form is a step up bond with serveral step-ups in coupons (multiple step-up bond).

Step-up bonds are usually callable by issuers at par on the dates the bonds are scheduled to step up their coupons. The bondholder will receive the interest due up to that point in time in addition to the principal of the bond at par value in return for the debt being paid back.



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