Callable Bond

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DEFINITION of 'Callable Bond'

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

Also known as a "redeemable bond."

BREAKING DOWN 'Callable Bond'

The main cause of a call is a decline in interest rates. If interest rates have declined since a company first issued the bonds, it will likely want to refinance this debt at a lower rate of interest. In this case, company will call its current bonds and reissue them at a lower rate of interest.

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RELATED FAQS
  1. What happens to the price of a premium bond as it approaches maturity?

    The price of a premium bond will decrease toward par value as the bond approaches maturity. Premium Bonds Vs. Discount Bonds All ... Read Full Answer >>
  2. What are the accounting entries when a company issues a callable bond?

    Callable bonds are listed as long-term liabilities on balance sheets, similar to other types of bonds, unless they mature ... Read Full Answer >>
  3. What risk factors should investors consider before purchasing a callable bond?

    A number of risk components should be considered in regard to any bond investment since bonds, like any investment, do carry ... Read Full Answer >>
  4. Under what circumstances might an issuer redeem a callable bond?

    The primary circumstance under which a bond issuer redeems a callable bond is a drop in interest rates. When rates fall, ... Read Full Answer >>
  5. What are the advantages of investing in a callable bond?

    The biggest advantage of investing in callable bonds is that the issuer almost always offers a higher interest rate than ... Read Full Answer >>
  6. Why is a premium usually paid on a callable bond?

    A premium over par value of a callable bond is typically offered to investors as extra compensation for the uncertainty inherent ... Read Full Answer >>
  7. Why do companies issue callable bonds?

    Companies issue callable bonds to allow them to take advantage of a possible drop in interest rates at some point in the ... Read Full Answer >>
  8. 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 Full Answer >>
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