Noncallable

AAA

DEFINITION of 'Noncallable'

A financial security that cannot be redeemed early by the issuer. The issuer of a noncallable bond subjects itself to interest rate risk because, at issuance, it locks in the interest rate it will pay until the security matures. If interest rates decline, the issuer must continue paying the higher rate until the security matures.


As a result, non-callable bonds tend to pay investors a lower interest rate than callable bonds. However, the risk is lower to the investor, who is assured of receiving the stated interest rate for the duration of the security. Corporate bonds are the most common type of security that carries call provisions.

INVESTOPEDIA EXPLAINS 'Noncallable'

Bonds are often called when interest rates drop because lower interest rates mean the company can finance its debt at a lower cost. The call feature subjects investors to reinvestment risk.


The opposite of a noncallable security is a callable security. A callable security can be redeemed early and pays a premium to compensate the investor for the risk that he or she will not earn as much compared to holding the security until maturity.


Some callable bonds are noncallable for a set period after they are first issued. This time period is called a protection period.

RELATED TERMS
  1. Call Premium

    1. The dollar amount over the par value of a callable fixed-income ...
  2. Call Protection

    A protective provision of a callable security prohibiting the ...
  3. Callable Bond

    A bond that can be redeemed by the issuer prior to its maturity. ...
  4. Hard Call Protection

    The period in the life of a callable bond during which the issuing ...
  5. Reinvestment Risk

    The risk that future coupons from a bond will not be reinvested ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in ...
Related Articles
  1. Bond Call Features: Don't Get Caught ...
    Bonds & Fixed Income

    Bond Call Features: Don't Get Caught ...

  2. When Your Bond Comes Calling
    Bonds & Fixed Income

    When Your Bond Comes Calling

  3. A corporate bond I own has just been ...
    Investing

    A corporate bond I own has just been ...

  4. The Basics of Options Profitability
    Options & Futures

    The Basics of Options Profitability

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center