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."

BREAKING DOWN '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.

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