When to Choose a Step-Up Bond

A step-up bond is a type of bond in which the coupon rate that is paid to the investor increases after a certain amount of time. During the initial period of the bond, it will pay a fixed rate of interest to the investor. Then after that period passes, the interest rate of the bond will increase or step-up to another level. 


This type of bond can be very beneficial to individuals who want to increase their passive income over the years. For example, if you are retired, you might want to put a significant portion of your funds into step up bonds. When you do this, you will receive regular interest payments over the life of the investment. In order to combat inflation, the payment that you receive towards the end of the bond will be bigger than the one that you received at the beginning. This will allow you to maintain the same standard of living even if inflation continues to increase. 


A step up bond will generally trade at a premium compared to traditional bonds. This is due to the expectation of the investor to receive a higher rate of interest in the future.

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