Fairway Bond
A type of bond that accrues interest if the embedded index or interest-rate option underlying the bond remains within a specified range.
Investopedia Commentary
The fairway in golf is like the index or interest rate range. The outlook is positive if the ball lands on the fairway. If, however, a ball lands in the rough, the outlook is negative.
Conservative investors will choose this type of bond in hopes of maximizing their yield when they believe that the option will remain within a certain range during the time the bond is held. Investors may profit the most during a sideways market. Should the option remain out of range, the least the investor can expect is a return of principal.
Also known as corridor bond, index range note, range accrual note, or index floater.
Related Links
Advanced Bond Concepts
Bond Basics Tutorial
See also: Accrued Interest, Bond, Digital Option, Double Barrier Option, Index, Index Option, Sideways Market