Rate Trigger

Your spouse might have a "leaving coffee cups on the counter or table" trigger. Leave a half-drunk cup of coffee in the living room and it will trigger some adverse action on her part.

Bonds have a similar dynamic going on. Certain events trigger certain actions. This situation usually comes up with callable bonds. The term refers to a bond that gives the issuer an option to call them in, meaning they can buy the bond back under certain pre-set conditions. These pre-set conditions can include a rate trigger: an interest rate level that, when reached, causes the issuer to call the bond.

A company issues 10-year bonds at a rate of 7%. After two years, overall rates drop. Now, the company could issue 10-year bonds and only pay 5%. So it calls the original set and issues a new one at 5%. The drop in rates triggered the call. Rate trigger.