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."
Investopedia Commentary
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.
Related Links
Bond Basics Tutorial
Advanced Bond Concepts
See also: Bond, Reinvestment Risk, Zero Coupon Bond
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