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Bunny Bond A type of bond that offers investors the option to reinvest coupon payments into additional bonds with the same coupon and maturity. Also known as a "multiplier bond" or a "guaranteed coupon reinvestment bond".
Bunny bonds are an effective way to protect against reinvestment risk, which arises from the possibility that interest rates will drop in the future. With a normal bond, investors are exposed to the risk of having to reinvest their coupons at a lower interest rate. If an investor chooses to reinvest all cash coupons back into the bond he or she is currently holding, it behaves similarly to a zero-coupon bond because the investor receives no cash flows until maturity. |