A situation in which a bond issuer redeems a bond before its maturity because the revenue source paying the coupons disappears. For example, suppose a callable bond is issued to build a factory, and the revenue from the factory pays the interest on the bond. If the factory burns down, the company may redeem the bond at par so it no longer has to make interest payments. While the above example is catastrophic, most extraordinary redemptions occur for more mundane reasons; for instance, a mortgage-backed security may be extraordinarily redeemed if too many mortgages are refinanced. An extraordinary redemption is also called a special call.
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See extraordinary call.
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.