Bailout Bond

What is ‘Bailout Bond’

A debt security issued by the Resolution Funding Corporation to bail out the savings and loan associations during the financial crisis of the late 1980s and early 1990s. The bailout bonds had zero-coupon Treasury bonds backing the principal amounts, making the instruments a safe investment.

Explaining ‘Bailout Bond’

In the mid 1990s, after the savings and loan associations recovered from its crisis, bailout bonds were no longer issued. Because the bonds were backed by Treasury securities, the yields were only marginally better than those of similar T-bonds.

Further Reading

  • Sovereign bond market reactions to fiscal rules and no-bailout clauses–the Swiss experience – [PDF]
  • European sovereign bailouts, political risk and the economic consequences of Mrs. Merkel – [PDF]
  • A pyrrhic victory? Bank bailouts and sovereign credit risk – [PDF]
  • Sovereign bond market reactions to no-bailout clauses and fiscal rules–The Swiss experience – [PDF]
  • Moral hazard and bail-out in fiscal federations: evidence for the German Länder – [PDF]
  • Balance sheet effects, bailout guarantees and financial crises – [PDF]