Hard Call Protection

AAA

DEFINITION of 'Hard Call Protection'

The period in the life of a callable bond during which the issuing company is not permitted to redeem the bond. Hard call bonds have this feature as a sweetener for investors, because even if interest rates drop, which would normally cause a bond to be called and reissued at the lower interest rate, hard call protection guarantees investors will receive the stated return for a fixed number of years, before the bond can be called. This protection typically lasts for the first three to five years of the bond's life.

Also called "absolute call protection."

INVESTOPEDIA EXPLAINS 'Hard Call Protection'

After the hard call protection period expires, the bond may continue to be partially protected by soft call protection. This feature requires certain conditions to exist before the bond can be called. For example, in the case of convertible callable bonds, soft call protection would prevent the issuer from calling the bond until the price of the underlying stock rose to a certain percentage above the conversion price.

Callable bonds pay a higher return because of the risk that the issuer will redeem them before maturity. Retail notes are an example of a type of bond that commonly includes call protection.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  3. Soft Call Provision

    A feature added to convertible fixed-income and debt securities. ...
  4. Sweetener

    A special feature or benefit added to a debt instrument (such ...
  5. Callable Bond

    A bond that can be redeemed by the issuer prior to its maturity. ...
  6. Accelerated Return Note (ARN)

    A short- to medium-term debt instrument that offers a potentially ...
RELATED FAQS
  1. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  2. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
  3. What are the differences between debt and equity markets?

    The basic differences between the debt and equity markets include the type of financial interest they represent, the way ... Read Full Answer >>
  4. What does it signify if the term structure of an interest rate's curve is positive?

    When the term structure of interest rates is positive, it is a signal to economists the short-term yields on similar bonds ... Read Full Answer >>
  5. What do cities do with the funds generated from municipal bonds?

    Funds generated from the sale of municipal bonds may go to provide for unspecified, general government financial needs, or ... Read Full Answer >>
  6. How is the standard error used in trading?

    The standard error is used in trading as an indicator to measure the volatility in price in relation to a linear regression ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Bond Call Features: Don't Get Caught Off Guard

    Learn why early redemption occurs and how to avoid potential losses.
  2. Bonds & Fixed Income

    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.
  3. Options & Futures

    Callable Bonds: Leading A Double Life

    Find out more about these dangerous and exciting cousins to regular bonds.
  4. Bonds & Fixed Income

    Why Stocks Outperform Bonds

    Why have stocks historically produced higher returns than bonds? It's all a matter of risk.
  5. Bonds & Fixed Income

    Bond Portfolios Made Easy

    Bonds have typically been viewed as stocks' less-glamorous sidekick, but they deserve a little more respect from investors.
  6. Options & Futures

    Common Bond-Buying Mistakes

    Avoid these errors made daily in bond portfolios everywhere.
  7. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  8. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Total Bond Market

    Learn about the Vanguard Total Bond Market exchange-traded fund, its primary portfolio holdings and risk/reward profile based on its past performance.
  10. Bonds & Fixed Income

    What are Floating-Rate Notes?

    A floating-rate note is a debt instrument with an interest rate that “floats,” or varies. They are also called floaters.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!