Call Risk

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DEFINITION of 'Call Risk'

The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem the issue prior to maturity. This means the bondholder will receive payment on the value of the bond and, in most cases, will be reinvesting in a less favorable environment (one with a lower interest rate).

INVESTOPEDIA EXPLAINS 'Call Risk'

Typically, bond issuers will call a bond because of the high rate they are paying on the bond. If interest rates have declined since it first issued the bonds, issuers will often call the bond once it becomes callable and will create a new issue at a lower rate. The bondholders will then lose out on the high rate of their bond and will have to invest in a lower rate environment.

RELATED TERMS
  1. Issuer

    A legal entity that develops, registers and sells securities ...
  2. New Issue

    A reference to a security that has been registered, issued and ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. Reinvestment Risk

    The risk that future coupons from a bond will not be reinvested ...
  5. Callable Bond

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

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