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 Protection

    A protective provision of a callable security prohibiting the ...
  2. Call Premium

    1. The dollar amount over the par value of a callable fixed-income ...
  3. Reinvestment Risk

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

    The principle that potential return rises with an increase in ...
  5. Callable Bond

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

    The period in the life of a callable bond during which the issuing ...
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. Investing

    A corporate bond I own has just been called by the issuer. How can a company legally take away my bond? ...

    Bond issues can contain what is referred to as a call provision, which is a right afforded to the issuing company enabling it to refund the bondholder the par value of his/her bond (perhaps including ...
  4. Options & Futures

    Options -- Accessing Stakes In Apple At Less Cost

    Finding Apple stock costly to trade? Here are multiple ways to trade it through low-cost Apple options.
  5. Options & Futures

    These Are The Top Brokerage Firms For Options Trading

    Trading options? Here is the list of the best brokerage firms for options trading, with features, functionality, and brokerage rates.
  6. Options & Futures

    What is a volatility smile?

    Discover what options traders mean when they refer to a "volatility smile," and learn why a volatility smile's existence perplexes many investors and analysts.
  7. Options & Futures

    Apple As An Example Of How a Protective Collar Works

    We define a protective collar, using Apple (AAPL) as an example. A protective collar is a combination of a covered call plus long put position.
  8. Options & Futures

    Apple As An Example Of How to Use a Bull Call Spread to Trade

    Here's how you can use a bull call spread to trade stocks.
  9. Options & Futures

    Is short selling ethical?

    Understand the concept and practice of short selling, and examine the ethical questions that some investors raise in regard to this practice.
  10. Options & Futures

    What kinds of restrictions does the SEC put on short selling?

    Learn about the rules and regulations on short selling enforced by the U.S. Securities and Exchange Commission, or SEC, including the uptick rule.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center