What is a Contingent Convertible Bond?

The bond with a split personality

The Basics

Meet the contingent convertible bond, or CoCo. Despite the cute nickname, don’t confuse it with the warm chocolatey drink you top with marshmallows. Instead, it’s a bond with a party trick: if the issuing bank runs into serious financial trouble, the bond can suddenly transform into shares or disappear altogether.

In good times, CoCos act like normal bonds, paying a steady coupon. But if the bank’s finances wobble, the bond doesn’t just sulk – it transforms, forcing investors to take losses so that taxpayers don’t have to.