What does a perpetual bond mean?

"Perpetual bond" (also known as perpetual obligation, perpetual loan, or in jargon "perpen") is a bond that has no maturity date and is therefore not redeemed. The issuer only pays interest, without the obligation to ever repay the principal.

Because these bonds have no maturity, it is difficult to calculate an exact effective yield. A well-known example in the Netherlands are the ledger loans of the Dutch state, which still pay interest.

In practice, many loans that are labelled as "perpetual" are ultimately redeemed by the issuing institution. This happens at a time that the institution itself chooses, which is called "calling" in jargon. Perpetual bonds are mainly issued by financial institutions because, due to their long duration, they are considered risk-bearing capital.