callable bond

Definition

Bond that can be called back (redeemed) by the issuer on payment of a call premium over the par value to the bondholder. Issuers often choose this option when (1) the market interest rate falls below the bond's interest rate, or (2) the issuer's ratings is raised by the bond rating agencies and, therefore, the issuer can raise funds at lower cost. Ordinarily, bonds cannot be redeemed before a certain period (usually 10 years), and are callable only at certain dates given in the bond indent. If any call date is missed, the bond may not be callable until the next call date.