Callable bond

Callable bond,

Definition of Callable bond:

  1. A callable bond is a debt instrument in which the issuer reserves the right to return the investor's principal and stop interest payments before the bond's maturity date. Corporations may issue bonds to fund expansion or to pay off other loans. If they expect market interest rates to fall, they may issue the bond as callable, allowing them to make an early redemption and secure other financings at a lowered rate. The bond's offering will specify the terms of when the company may recall the note.

  2. 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 bonds interest rate, or (2) the issuers 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.

  3. A callable bond, also known as a redeemable bond, is a bond that the issuer may redeem before it reaches the stated maturity date. A callable bond allows the issuing company to pay off their debt early. A business may choose to call their bond if market interest rates move lower, which will allow them to re-borrow at a more beneficial rate. Callable bonds thus compensate investors for that potentiality as they typically offer a more attractive interest rate or coupon rate due to their callable nature.

How to use Callable bond in a sentence?

  1. A callable bond is a debt security that can be redeemed early by the issuer before its maturity at the issuer's discretion.
  2. A callable bond benefits the issuer, and so investors of these bonds are compensated with a more attractive interest rate than on otherwise similar non-callable bonds.
  3. A callable bond allows companies to pay off their debt early and benefit from favorable interest rate drops.

Meaning of Callable bond & Callable bond Definition