Perpetual Bond
A perpetual bond — also called a perp or consol — is a bond with no maturity date that pays coupon interest indefinitely, with principal never formally repaid unless the issuer exercises an embedded call option or redeems the instrument voluntarily.
Perpetual bonds occupy a unique position in the capital structure spectrum, sitting between traditional debt and equity. Because principal is never legally due, perpetuals can qualify for equity-like or hybrid treatment under accounting and regulatory frameworks, which drives their use by banks, insurers, and governments looking to strengthen balance sheets without diluting shareholders or breaching debt covenants.
In the US market, bank perpetual preferred securities and trust preferred securities (TruPS) are the most common domestic perpetual-like instruments. Internationally, perpetual bonds issued by Asian developers and banks — particularly in Hong Kong and Singapore — have been active markets. The UK government famously issued consols in the 18th century that traded until the 20th century, representing perhaps the most storied example of perpetual sovereign debt.
Valuing a perpetual bond uses a simplified discounted cash flow model: if the coupon is fixed and paid forever, the price equals the coupon divided by the required yield (Price = Coupon / Yield). A perpetual bond paying $50 per year in a 5% yield environment would trade at par ($1,000). If yields rise to 6.25%, the price falls to $800. This formula also demonstrates that perpetuals have very high duration — in the limit, duration approaches 1 divided by the yield, making them among the most interest-rate-sensitive instruments in a portfolio.
Nearly all modern perpetuals include call provisions allowing the issuer to redeem at par on specified call dates. In practice, issuers are expected to call on the first call date (a market convention), and failure to do so — a non-call event — is viewed negatively by the market and can widen spreads significantly across all of an issuer's perpetual instruments.
For investors, perpetuals carry the highest duration risk among fixed-rate bonds and significant credit risk since they are typically subordinated to senior debt. The higher yield versus comparable maturity bonds reflects both the duration and subordination premium.