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 ?
10 /PRNewswire/ -- Fannie Mae (Federal National Mortgage Association) (NYSE: FNM) today announced that it will launch the first global callable bond ever and the first transaction to be executed under the company's new $20 billion Global Debt Facility.
The reason is that the set of profitable call opportunities for a noncallable bond repurchased at market price will, in general, be greater than those of a callable bond repurchased at fixed call premiums.
Taken together, these results provide new insights about optimal call policy and complement previous research about the behavior of callable bond prices.
Ahlstrom, a global high performance fiber-based materials company, issues a EUR 100 million senior unsecured callable bond.
He said that ORPIC took out its deposit for the contract which was set aside as a form of callable bond.
5bn to make the USD 2bn target for the year and USD 1bn to replace the callable bond.
In light of the dramatic changes in the callable bond market, we reexamine the determinants of callable bonds.
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.
The yield on Emirates Bank's floating rate callable bond due December 2016 has fallen less than the average yield on debt of the region's financial institutions.
On the day of the announcement (Day 0), callable bond returns fall 0.