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Call Provision

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Dictionary Says

Definition of 'Call Provision'

A provision on a bond or other fixed-income instrument that allows the original issuer to repurchase and retire the bonds. If there is a call provision in place, it will typically come with a time window under which the bond can be called, and a specific price to be paid to bondholders and any accrued interest are defined. 

Callable bonds will pay a higher yield than comparable non-callable bonds.
Investopedia Says

Investopedia explains 'Call Provision'

A bond call will almost always favor the issuer over the investor; if it doesn't, the issuer will simply continue to make the current interest payments and keep the debt active. Typically, call options on bonds will be exercised by the issuer when interest rates have fallen. The reason for this is that the issuer can simply issue new debt at a lower rate of interest, effectively reducing the overall cost of their borrowing, instead of continuing to pay the higher effective rate on the borrowings.

Related Definitions

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    Bond

    A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used ...
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  • 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".
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  • Call Premium

    1. The dollar amount over the par value of a callable fixed-income debt security that is given to holders when the security is called by the issuer. 2. The amount the purchaser of a call ...
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    • Yield To Call

      The yield of a bond or note if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. The calculation of yield ...
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    • Forced Conversion

      The occurrence of an issuer of a convertible security exercising the right to call the issue, forcing investors to convert their securities into the predetermined number of shares.
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    • Implied Call

      A right given to mortgage borrowers that allows them to call or pay-back a loan at any time. The call is implied, as it is included in most mortgages unless specified otherwise.
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    • 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 ...
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