Perpetual bonds: what they are and how they work

Nowadays, perpetual bonds could be back in the spotlight among institutional investors and beyond. After generating significant interest during the pandemic, these atypical instruments had been forgotten, but are now making a comeback in a rapidly changing financial environment, where central banks are preparing to ease restrictive monetary policies.

After years of rising interest rates, the market is preparing for a turnaround, and the environment could once again favor instruments capable of offering a steady flow of interest over time. Add to this the need for banks and companies to strengthen their capital structure without taking on excessive debt, and perpetual bonds reemerge as an attractive option.

But what exactly are perpetual bonds? And why could they represent an attractive bet in this new macroeconomic scenario?

In this article, we explore the key characteristics of perpetual bonds, the risks to consider, and the reasons why they may be making a comeback, focusing on yield, diversification, and portfolio optimization.

Perpetual Bonds (Irredeemable Bonds): What They Are and How They Work

In financial parlance, "irredeemable" means precisely that: something that cannot be repaid. Transposed to the world of investments, the term translates to a specific category of bonds that have no predetermined maturity.

Perpetual bonds (or irredeemable bonds) are instruments that guarantee investors a return in the form of regular coupons, but without a specific date for the initial principal repayment.

Unlike traditional bonds, the principal repayment here is not automatic: the issuer can decide to "call" the bond after a certain period, but is not obligated to do so. In the meantime, the investor receives interest at regular intervals, as if they were holding a life annuity.

The advantage is a potentially infinite flow of coupons. The risk, however, is that the principal is tied up for an indefinite period, with the bond’s market value fluctuating over time based on factors such as inflation, interest rates, and the issuer’s creditworthiness.

Irredeemable Bonds Today

In 2025, perpetual bonds have returned to the market thanks to a growing number of issuances by large industrial groups and banks. These instruments are chosen not only for their ability to offer stable returns to investors, but also as strategic levers to support structural investments, strengthen capital, and meet increasingly complex regulatory requirements.

Take the case of ENI, which in January launched a double issue of subordinated hybrid perpetual bonds for €1.5 billion, with an annual coupon of 2.625% (ISIN XS2242929532). Listed on the Luxembourg Stock Exchange, these bonds are designed to strengthen the group’s capital structure while maintaining financial flexibility and attractiveness for investors seeking stable income.

The banking sector has also relied on these instruments. Intesa Sanpaolo, for example, has placed AT1 (Additional Tier 1) bonds with coupons of up to 7% to contribute to regulatory capital requirements, but also to offer attractive returns in a still-high interest rate environment. The same goes for Enel, which has issued perpetual bonds with coupons around 4.25%–4.5%, demonstrating how utilities see these instruments as an effective way to finance energy transitions and long-term infrastructure projects. These bonds are listed on the Irish stock exchange (Euronext Dublin).

Another emblematic case is OMV AG, which has perpetual bonds on the market with a 6.25% coupon, ISIN XS1294343337, featuring a designated call date (December 9, 2025) but no actual maturity: a hybrid solution that offers predictability to the market but also room for maneuver for the issuer.

And then there’s the historical example par excellence: the perpetual bond issued by Austria in 2017, still active today with a 2.10% gross annual coupon, which set an important precedent in the world of long-term sovereign debt.

Irredeemable Bonds: Perpetual Bonds in History

The first perpetual bond in history was issued in 1720 to cover losses caused by the financial crisis of the South Sea Company, a company founded to buy out English public debt in exchange for a monopoly on trade with Spain’s colonies in South America.

They were issued by London to finance wars (first against Napoleon and later during the First World War) and in the United States to finance the War of Secession.

One of the domestic examples of irredeemable bonds is the Annuity Italian, used by Giolitti in the early 1900s. In Italy, they were also used to finance the war (in Ethiopia), with interest paid until 1981, when a law repealed the irredeemability, redeeming the bond.

Issuers can also be banks and insurance companies. In August 2020, Intesa Sanpaolo issued €750 million in perpetual bonds, raising over €6.5 billion.

Perpetual bonds as a tool for financial sovereignty. What economists think

The debate over perpetual bonds has also gained momentum in Italy. Reviving it in recent years was Paolo Savona, president of Consob, who on several occasions suggested channeling part of Italians’ savings into voluntary perpetual bonds, presented as a form of "voluntary wealth" capable of strengthening public finances without increasing the tax burden.

According to Savona, these instruments would represent a "strongly democratic" choice, capable of limiting the risk of future drastic measures and contributing to long-term investments without burdening future generations.

This view is also shared by academics such as Professor Filippo Zatti of the University of Florence, who highlights how the issuance of perpetual bonds, in a country where private savings are abundant, could strengthen financial sovereignty and free up resources for strategic sectors such as infrastructure and the digital transition.

But there are also critical voices. Davide Iacovoni, head of public debt management at the Ministry of the Economy and Finance, puts the brakes on the idea: in his opinion, perpetual bonds remain a "niche market," too limited to support real budgetary needs. In short, the debate is open. And for investors, it’s worth understanding in depth what perpetual bonds are, how they work, and what implications they may have.

Original article published on Money.it Italy. Original title: Bond irredimibili, cosa sono e come funzionano le obbligazioni perpetue