Callable Bonds and Interest Rate Risk

By Stock Research Pro • December 3rd, 2009

A callable bond, also known as a “redeemable bond”, provides the bond issuer with the right to buy the bond back from the holder before the bond reaches maturity. Usually, the terms of a callable bond includes rules and guidelines regarding the conditions under which the issuer may redeem the bond early. A call date is often specified as the earliest possible date on which the issuer can exercise a call.

The main reason for a call is usually that interest rates have declined since the bond was issued. When rates fall, issuers often call outstanding bonds in order to issue new bonds at a lower interest rate. Therefore, callable bonds create interest rate risk to their holders along with an element of uncertainty regarding the timing of a call.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

delicious | digg | reddit | facebook | technorati | stumbleupon | chatintamil

Leave a Comment

You must be logged in to post a comment.

« The Impact of the Ex-Dividend Date on Stock Trading | Home | Blend Fund Investing for Diversification »