BROWSE

Fairway Bond

What is '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. The fairway in golf is like the index or interest rate range. The outlook is positive if the ball lands on the fairway; if a ball lands in the rough, the outlook is negative.


Also known as "corridor bond", "index range note", "range accrual note", or "index floater".

Explaining 'Fairway Bond'

Conservative investors tend to choose this type of bond in the hope 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.


Further Reading


Financial derivatives and the costs of regulatory arbitrage
heinonline.org [PDF]
… recent years.61 Certain types of structured notes are directed at the often non-economic concerns of … The Collateralized Bond Obligation (CBO) is a typical example of the use of an SPV to … In a CBO, the SPV purchases a portfolio of assets, eg, high-yield bonds, and finances its …

Future port infrastructure finance: Lessons and recommendationsFuture port infrastructure finance: Lessons and recommendations
books.google.com [PDF]
… recent years.61 Certain types of structured notes are directed at the often non-economic concerns of … The Collateralized Bond Obligation (CBO) is a typical example of the use of an SPV to … In a CBO, the SPV purchases a portfolio of assets, eg, high-yield bonds, and finances its …



Q&A About Fairway Bond


What is a fairway bond?

A fairway bond is a type of bond that accrues interest if the embedded index or interest-rate option underlying the bond remains within a specified range.

Why would investors choose this type of bond?

Conservative investors tend to choose this type of bond in the hope of maximizing their yield when they believe that the option will remain within a certain range during the time the bond is held.

What can you expect if an investor holds on to this type of investment?

The investor can expect to profit most during sideways markets. If an investor chooses this investment and it does not perform, he or she will at least receive his or her principal back.

Is there anything else you should know about these types of investments?

Yes, conservative investors tend to choose them because they believe that they will maximize their yield when they believe that the option will remain within a certain range during the time period that they hold on to it.

What are some other names for these bonds?

These bonds are also known as "corridor bonds", "index range notes", "range accrual notes" and "index floaters".

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