Putable Bond
A bond that gives the holder the right to sell the bond back to the issuer at a specified price before maturity.
What is Putable Bond?
A putable bond (also called a put bond or retractable bond) is a fixed-income security that gives the bondholder—not the issuer—the right to sell (put) the bond back to the issuer at a predetermined price (typically par) on specified dates before maturity. This embedded put option protects bondholders in rising-rate environments: if interest rates rise and the bond's market value falls below the put price, the investor can exercise the option to sell the bond at the higher put price rather than suffer the market loss. Because the put option benefits the investor, putable bonds carry lower yields than otherwise identical non-putable bonds. The value of the put option is reflected in the option-adjusted spread (OAS).
Example
A 10-year putable bond allows the holder to sell the bond back at par after 5 years. If interest rates rise sharply over the first five years and the bond's market value falls to $920, the investor exercises the put and receives $1,000 (par)—avoiding an $80 per bond loss. This floor protection makes putable bonds particularly attractive for investors who are uncertain about the interest rate path over long time horizons.