Callable Security


DEFINITION of 'Callable Security'

A security with an embedded call provision that allows the issuer to repurchase or redeem the security by a specified date. Since the holder of a callable security is exposed to the risk of the security being repurchased, the callable security is generally less expensive than comparable securities that do not have a call provision.

BREAKING DOWN 'Callable Security'

The conditions of the call provision are established at the time the security is issued. Callable securities are commonly found in the fixed-income markets and allow the issuer to protect itself from overpaying for debt.

For example, a bond issuer may choose to redeem a certain issue when the current market rate falls below the coupon rate of the bond by a set amount. This allows the issuer to reissue the bonds at a lower rate and avoid paying a higher interest rate.

  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  2. Redemption

    The return of an investor's principal in a fixed income security, ...
  3. Forced Conversion

    The occurrence of an issuer of a convertible security exercising ...
  4. Fixed Income

    A type of investing or budgeting style for which real return ...
  5. Call Risk

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

    A bond that can be redeemed by the issuer prior to its maturity. ...
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