Part of the indenture agreement between the bond issuer and buyer describing the schedule and price of redemptions prior to maturity.
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A provision in an indenture that makes a bond callable. A callable bond allows the issuer to redeem the bond before maturity. When the bond is called, the bondholder receives the par value (or sometimes 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 issuers can call the bond and issue a new bond at a lower interest rate, reducing their 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.
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See call provision.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.