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 ?
M2 EQUITYBITES-February 13, 2019-Cherry notifies on early redemption of senior secured callable bonds
Global Banking News-February 13, 2019-Cherry notifies on early redemption of senior secured callable bonds
NORDIC BUSINESS REPORT-February 13, 2019-Cherry notifies on early redemption of senior secured callable bonds
The County of Gloucester is proposing to issue the 2016 Refunding Bonds to advance refund all or a portion of the County%s outstanding callable Bonds: (i) originally issued $29,927,000 General Obligation Bonds, Series 2006; and (ii) originally issued $39,990,000 General Obligation Bonds, Series 2009.
"Because homeowners can refinance a mortgage without penalty but the lender cannot do the same, holding a mortgage is essentially like issuing callable bonds. If rates decline, the homeowner can simply refinance and take advantage of lower borrowing costs.
Despite its financial prowess, WSJ doesn't even mention risk-mitigating tools like balancing long term with short term, adjustable balanced with fixed, and callable bonds.
These consist of P10.0 billion callable bonds due in 2027, P10.0 billion multiple put corporate bonds maturing in 2021, P10.0 billion putable bonds maturing in 2017 and P10.0 billion fixed rate bonds maturing in 2019.
These include callable bonds, shortduration bonds, high-coupon bonds, defensive bonds and bonds with short-term triggers.
The agency also gave its BBB rating to the bank's subordinated callable bonds due 27 July 2017 issued in the amount of JPY10bn (USD129m/EUR94m).
Although this is true of most bonds, this is not the case with callable bonds. In short, when interest rates fall, the risk of the bond being "called away" increases.
Second, we exclude callable bonds, Rule 144A issues, and utility issues from the sample.
As postulated by Taggart and Bodie (1978) and Barnea, Hauge, and Senbet (1980), risk incentive agency costs can be reduced by issuing callable bonds because the call option value (i.e., stockholders' wealth) declines as management shifts to riskier projects that reduce firm value.