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 ?
The only feature that they consistently set to boost option values is the call date, which the riskier firms tend to set at three or five years, compared to seven or ten years more commonly found for investment-grade callable bonds.
By relying exclusively on callable bonds, federal agencies, corporations, and municipalities are missing out on the benefit of today's record-low Treasury yields.
In the market, however, prices of callable bonds often exceed the call prices.
The strategies may hold callable bonds, which may increase interest rate risk exposure.
They demonstrate that the net tax benefits of issuing this debt exceed the net tax benefits of issuing callable bonds with a fixed call premium.
EUR 500 million undated guaranteed junior subordinated fix-to-floating callable bonds
In Section III, we extend the model to callable bonds and examine optimal call policies in a stochastic term structure environment.
Although much has been learned from existing tax based analyses of callable bonds, the extant models suffer from both theoretical and practical deficiencies.
Jian Gao, vice chairman of the China Development Bank, has contributed to the introduction of new debt instruments in the interbank market, such as floating rate notes (FRNs), puttable bonds, callable bonds, strip bonds, 30-year bonds, swaption-embedded bonds, and forward rate bonds.
EUR 500 million undated guaranteed subordinated fix-to-floating callable bonds (guaranteed by Hannover Re)
As in 1997, charges will be applied to mortgage-backed securities, callable bonds, and manufactured housing and home equity asset-backed securities.
Table excludes callable bonds currently in default.