DEFINITION of 'American Callable Bond'

A bond that can be redeemed by the issuer at any time prior to its maturity. Usually a premium is paid to the bondholder when the bond is called.

BREAKING DOWN 'American Callable Bond'

The main cause of a call is a decline in interest rates since the first date of issue. The issuer would likely call the current bonds and distribute new bonds at a lower interest rate. Unfortunately, these types of bonds pose considerable interest rate risk to bondholders. Also, since the issuer can call the bond at any time before maturity, there is also uncertainty as to when the call (and corresponding interest rate exposure) will occur.

RELATED TERMS
  1. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer ...
  2. Callable Bond

    A bond that can be redeemed by the issuer prior to its maturity. ...
  3. Reverse Convertible Bond - RCB

    A bond that can be converted to cash, debt or equity at the discretion ...
  4. European Callable Bond

    A bond that can be redeemed by the issuer at a predetermined ...
  5. Bond

    A debt investment in which an investor loans money to an entity ...
  6. Call Provision

    A provision on a bond or other fixed-income instrument that allows ...
Related Articles
  1. Investing

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  2. Investing

    Bond Call Features: Don't Get Caught Off Guard

    Learn why early redemption occurs and how to avoid potential losses.
  3. Investing

    A Guide to High Yield Corporate Bonds

    The universe of corporate high yield bonds encompasses multiple different types and structures.
  4. Investing

    When Your Bond Comes Calling

    Callable bonds can leave investors with a pile of cash in a low-interest market. Find out what you can do about it.
  5. Investing

    Understanding Redemption

    In the investing world, redemption refers to cashing out the value of bonds or mutual funds.
  6. Financial Advisor

    7 Questions to Consider Before Investing in Bonds

    There is a significant number of questions every investor, private or institutional, should consider before investing in bonds.
  7. Financial Advisor

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
  8. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  9. Investing

    Six Biggest Bond Risks

    Don't assume that you can't lose money in this market - you can. Find out how.
  10. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
RELATED FAQS
  1. What risk factors should investors consider before purchasing a callable bond?

    Understand the difference between callable and non-callable bonds and consider all the various risk factors associated with ... Read Answer >>
  2. Why doesn't the price of a callable bond exceed its call price when interest rates ...

    A callable bond provides the issuer (borrowing entity) with an option to redeem the bond before its original maturity date. ... Read Answer >>
  3. Under what circumstances might an issuer redeem a callable bond?

    Understand why an interest rate drop usually compels bond issuers to redeem callable bonds and re-issue them at the new, ... Read Answer >>
  4. Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate ... Read Answer >>
  5. In the context of a bond, what does the principal refer to?

    Get introduced to the world of bond investing and learn what the term "principal" means in reference to a corporate or government ... Read Answer >>
  6. What are the risks of investing in a bond?

    The most well-known risk in the bond market is interest rate risk - the risk that bond prices will fall as interest rates ... Read Answer >>
Hot Definitions
  1. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  2. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  3. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  4. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  5. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  6. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
Trading Center