Definition
A callable bond gives the issuer the right to repay the principal before the maturity date, typically after a call protection period. Issuers call bonds when interest rates fall so they can refinance at lower rates. Callable bonds offer higher yields to compensate investors for this reinvestment risk.
Example
A 10-year callable bond with 5-year call protection can be redeemed anytime after year 5 if rates drop significantly.
FAQ
What is Callable Bond?
A bond that can be redeemed by the issuer before maturity.
Why is Callable Bond important?
Callable Bond helps investors evaluate fixed income and make more informed decisions.