Callable Bond

callable bond

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

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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.

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Callable Bond

What Does Callable Bond Mean?

A bond that can be redeemed (called) by the issuer before its maturity; usually a premium is paid to the bond owner when the bond is called. Also referred to as a redeemable bond.

Investopedia explains Callable Bond

The main reason a bond is called by an issuer is a decline in interest rates. If interest rates have declined since a company first issued its bonds, it probably will want to refinance the debt at a lower rate of interest. In this case, the company will call its current bonds and reissue new bonds at a lower rate of interest. This saves the issuer money by lowering the interest payments on the bonds.

Related Terms:
• Bond
• Call
• Debt
• Interest Rate
• Yield to Maturity