An everlasting bond or perpetual bond is a bond with an indefinite maturity (no fixed maturity date).
The bond periodically issues a fixed interest payment on the principal amount of the bond (the nominal amount) without it ever having to be repaid. Sometimes the prospectus contains a clause that at any moment in the future the principal sum can still be repaid. Perpetual bonds are usually a form of subordinated loans. The return on the bond is equal to the promised annual interest payment divided by the purchase or issue price.
Example: The bonds were issued by the issuer at a price value of € 1,000. The annual interest is € 70. The return for the person who buys the bond at issue is 70/1000 = 0.07 or 7%, equal to the nominal interest rate. If the bond is traded on the stock market for some time, for example € 840 – then the return for the person who buys the bond at that moment is: 70/840 = 8.33%.
Well-known perpetual loans, the water authority letters were issued in the second half of the 18th century and the city councils of the city of Haarlem issued between 1769 and 1806, which are still interest-bearing up to the present day; usually 2.5%.
Nowadays banks finance themselves with subordinated loans in the form of perpetual bonds because they are partially included in the guarantee capital. This allows them to comply with the Tier 1 and Tier 2 standards of “Basel”.