What is a bond warrant?

It is a derivative instrument giving the holder the right, but not the obligation, to buy or sell a specific bond at a specific price either on a particular day or within a specified time period.

Where have you heard about bond warrants?

Your financial adviser may have suggested using them and specialist investment publications may feature them as part of an overall investment strategy. Investment guides are likely to have a section on bond warrants.

What you need to know about bond warrants.

They are derivatives, in that they 'derive' their value from the actual security. Bond warrants are similar to options in that the holder has the right to buy or sell the bond concerned but is not obliged to exercise that right. One reason to buy a bond warrant would be to hedge an investor's position by ensuring that, for example, they are able to buy the bond question should its price rise above that specified in the warrant. Another would be to build up a position in the bond in question without having to lay out a large amount of money upfront.