Callable Bond (Call Feature)
The issuer may redeem the bond before maturity.
What is Callable Bond (Call Feature)?
Issuers call bonds when interest rates fall, to refinance at a lower cost - exactly when investors least want their principal back. Investors are compensated with a higher yield and sometimes a call premium above par. Call protection is the initial period during which the bond cannot be called. A callable bond's price tends to stall near its call price when rates fall.
Callable Bond (Call Feature): a worked example
A 6% bond callable at 102 in a 4% rate environment will very likely be called.
More terms in Bonds & Cash Equivalents
Certificate of Deposit (CD)
A bank time deposit paying a fixed rate for a fixed term, FDIC insured.
Commercial Paper
Unsecured short-term corporate debt, 270 days or less.
Treasury Inflation-Protected Securities (TIPS)
Treasuries whose principal adjusts with the CPI.
Zero-Coupon Bond
Sold at a deep discount, pays no interest, matures at par.
Asset-Backed Securities (ABS / MBS)
Bonds backed by pools of loans - mortgages, auto loans, credit cards.
General Obligation (GO) Bond
A municipal bond backed by the issuer's full faith, credit, and taxing power.
Revenue Bond
A municipal bond repaid only from the revenue of a specific project.
Insured Municipal Bond
A muni with third-party insurance guaranteeing principal and interest.