callable bond


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Callable Bond

A bond that may be redeemed before maturity. Callability allows the bond to be called at the discretion of the issuer within certain limits. When the bond is called, the bondholder receives the par value (or sometimes a bit more) and does not receive any more coupons. Callable bonds are issued to allow the issuers to hedge against interest rate risk. That is, if interest rates fall significantly, the issuer can call the bond and issue a new bond at a lower interest rate, reducing its liabilities. However, to protect the bondholder, most callable bonds also include call protection which prevents the bonds from being called for a certain period of time and thereby guarantees the current interest rate for that time.

callable bond

A bond that is subject to redemption by its issuer before maturity.

Callable bond.

A callable bond can be redeemed by the issuer before it matures if that provision is included in the terms of the bond agreement, or deed of trust.

Bonds are typically called when interest rates fall, since issuers can save money by paying off existing debt and offering new bonds at lower rates. If a bond is called, the issuer may pay the bondholder a premium, or an amount above the par value of the bond.

References in periodicals archive ?
P has affirmed "that agreement in principle on the terms of a proposed restructuring has been reached with certain of its main lenders and an ad hoc group of bondholders in its NOK 700 million Senior Unsecured Callable Bond Issue 2013/2016 (ISIN NO 001 0673866).
He said that ORPIC took out its deposit for the contract which was set aside as a form of callable bond.
If they had issued a callable bond, the market would have demanded a higher initial interest rate.
The company also noted that the subsidiary Chapter 11 filing will likely constitute an event of default under the loan agreement in respect of the NEC convertible callable bond issue 2012/2015 (ISIN NO 001064079.
The majority of the company's bondholders have made commitments to vote for the conversion of the accumulated interest and principal on the company's 2009 and FRN 2009 callable bond issues into shares at a price of NOK0.
In light of the dramatic changes in the callable bond market, we reexamine the determinants of callable bonds.
Since the investor faces the risk of an uncertain stream of cash flows, the common market practice is to demand a higher yield in a callable bond than in a non-callable bond in order to compensate the higher risk caused by the embedded call options in a specific issue.
In a world without inflation, default-free callable bond yields would be readily available from GNMA ("Ginnie Mae") pass-through mortgage-backed securities (MBS).
The chart at the lower left takes a common callable bond, the 30-year Government National Mortgage Association bond, and subtracts, as an estimate of inflation, the yield difference between a 10-year Treasury bond and a 10-year TIIS.
The following section will discuss how the value (and yield) of a callable bond differs from a noncallable bond.
A callable bond permits an issuer to retire its debt prior to maturity.
Norse Energy said that Chapter 11 filing by its subsidiary will likely constitute an event of default under the loan agreement in respect of the NEC convertible callable bond issue 2012/2015.