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.hatnote{display:none!important}}</style><div role="note" class="hatnote navigation-not-searchable">"Callable" redirects here. For callable objects in programming languages, see <a href="/wiki/Callable_object" title="Callable object">callable object</a>.</div> <p>A <b>callable bond</b> (also called <b>redeemable bond</b>) is a type of <a href="/wiki/Bond_(finance)" title="Bond (finance)">bond</a> (<a href="/wiki/Security_(finance)#Debt_and_equity" title="Security (finance)">debt security</a>) that allows the <a href="/wiki/Issuer" title="Issuer">issuer</a> of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity.<sup id="cite_ref-1" class="reference"><a href="#cite_note-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup> In other words, on the call date(s), the issuer has the right, but not the obligation, to buy back the bonds from the bond holders at a <a href="/wiki/Redemption_value" title="Redemption value">defined call price</a>. Technically speaking, the bonds are not really bought and held by the issuer but are instead cancelled immediately. </p><p>The call price will usually exceed the <a href="/wiki/Par_value" title="Par value">par</a> or issue price. In certain cases, mainly in the <a href="/wiki/High-yield_debt" title="High-yield debt">high-yield debt</a> market, there can be a substantial call premium. </p><p>Thus, the issuer has an <a href="/wiki/Option_(finance)" title="Option (finance)">option</a> which it pays for by offering a higher <a href="/wiki/Coupon_(bond)" class="mw-redirect" title="Coupon (bond)">coupon</a> rate. If interest rates in the market have gone down by the time of the call date, the issuer will be able to <a href="/wiki/Refinance" class="mw-redirect" title="Refinance">refinance</a> its debt at a cheaper level and so will be incentivized to call the bonds it originally issued.<sup id="cite_ref-2" class="reference"><a href="#cite_note-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup> Another way to look at this interplay is that, as interest rates go down, the present values of the bonds go up; therefore, it is advantageous to buy the bonds back at <a href="/wiki/Par_value" title="Par value">par value</a>. </p><p>With a callable bond, investors have the benefit of a higher <a href="/wiki/Coupon_(bond)" class="mw-redirect" title="Coupon (bond)">coupon</a> than they would have had with a non-callable bond. On the other hand, if interest rates fall, the bonds will likely be called and they can only invest at the lower rate. This is comparable to selling (writing) an option — the option writer gets a premium up front, but has a downside if the option is exercised. </p><p>The largest market for callable bonds is that of issues from government sponsored entities. They own many <a href="/wiki/Mortgages" class="mw-redirect" title="Mortgages">mortgages</a> and <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed securities</a>. In the U.S., mortgages are usually fixed rate, and can be prepaid early without cost, in contrast to the norms in other countries. If rates go down, many home owners will refinance at a lower rate. As a consequence, the agencies lose assets. By issuing numerous callable bonds, they have a natural hedge, as they can then call their own issues and refinance at a lower rate. </p><p>The price behaviour of a callable bond is the opposite of that of <a href="/wiki/Puttable_bond" title="Puttable bond">puttable bond</a>. Since <a href="/wiki/Call_option" title="Call option">call option</a> and <a href="/wiki/Put_option" title="Put option">put option</a> are not <a href="/wiki/Mutually_exclusive" class="mw-redirect" title="Mutually exclusive">mutually exclusive</a>, a bond may have both options embedded.<sup id="cite_ref-3" class="reference"><a href="#cite_note-3"><span class="cite-bracket">[</span>3<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Pricing">Pricing</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Callable_bond&action=edit&section=1" title="Edit section: Pricing"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951"><div role="note" class="hatnote navigation-not-searchable">Further information: <a href="/wiki/Bond_option#Embedded_options" title="Bond option">Bond option § Embedded options</a></div> <dl><dd><dl><dd><b>price of callable bond = price of straight bond – price of call option</b>;</dd></dl></dd></dl> <ul><li>Price of a callable bond is always lower than the price of a straight bond because the call option adds value to an issuer.<sup id="cite_ref-4" class="reference"><a href="#cite_note-4"><span class="cite-bracket">[</span>4<span class="cite-bracket">]</span></a></sup></li> <li>Yield on a callable bond is higher than the yield on a straight bond.</li></ul> <div class="mw-heading mw-heading2"><h2 id="References">References</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Callable_bond&action=edit&section=2" title="Edit section: References"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1239543626">.mw-parser-output .reflist{margin-bottom:0.5em;list-style-type:decimal}@media screen{.mw-parser-output .reflist{font-size:90%}}.mw-parser-output .reflist .references{font-size:100%;margin-bottom:0;list-style-type:inherit}.mw-parser-output .reflist-columns-2{column-width:30em}.mw-parser-output .reflist-columns-3{column-width:25em}.mw-parser-output .reflist-columns{margin-top:0.3em}.mw-parser-output .reflist-columns ol{margin-top:0}.mw-parser-output .reflist-columns li{page-break-inside:avoid;break-inside:avoid-column}.mw-parser-output .reflist-upper-alpha{list-style-type:upper-alpha}.mw-parser-output .reflist-upper-roman{list-style-type:upper-roman}.mw-parser-output .reflist-lower-alpha{list-style-type:lower-alpha}.mw-parser-output .reflist-lower-greek{list-style-type:lower-greek}.mw-parser-output .reflist-lower-roman{list-style-type:lower-roman}</style><div class="reflist"> <div class="mw-references-wrap"><ol class="references"> <li id="cite_note-1"><span class="mw-cite-backlink"><b><a href="#cite_ref-1">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://www.sec.gov/answers/callablebonds.htm">Callable or Redeemable Bonds</a></span> </li> <li id="cite_note-2"><span class="mw-cite-backlink"><b><a href="#cite_ref-2">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://www.unc.edu/~eghysels/lectures/AdvInc/CallableBonds3.pdf">Advanced Fixed Income: Callable Bonds</a></span> </li> <li id="cite_note-3"><span class="mw-cite-backlink"><b><a href="#cite_ref-3">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://nd.edu/~zda/TeachingNote_ConvertibleBonds.pdf">Teaching Note on Convertible Bonds</a></span> </li> <li id="cite_note-4"><span class="mw-cite-backlink"><b><a href="#cite_ref-4">^</a></b></span> <span class="reference-text"><style data-mw-deduplicate="TemplateStyles:r1238218222">.mw-parser-output cite.citation{font-style:inherit;word-wrap:break-word}.mw-parser-output .citation q{quotes:"\"""\"""'""'"}.mw-parser-output .citation:target{background-color:rgba(0,127,255,0.133)}.mw-parser-output .id-lock-free.id-lock-free a{background:url("//upload.wikimedia.org/wikipedia/commons/6/65/Lock-green.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-limited.id-lock-limited a,.mw-parser-output .id-lock-registration.id-lock-registration a{background:url("//upload.wikimedia.org/wikipedia/commons/d/d6/Lock-gray-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-subscription.id-lock-subscription a{background:url("//upload.wikimedia.org/wikipedia/commons/a/aa/Lock-red-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .cs1-ws-icon a{background:url("//upload.wikimedia.org/wikipedia/commons/4/4c/Wikisource-logo.svg")right 0.1em center/12px no-repeat}body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-free a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-limited a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output 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rel="nofollow" class="external text" href="https://web.archive.org/web/20080807131915/http://www.ambassador-capital.com/def/CallableBonds.htm#">"Callable Bonds"</a>. Archived from <a rel="nofollow" class="external text" href="http://www.ambassador-capital.com/def/CallableBonds.htm#">the original</a> on 2008-08-07<span class="reference-accessdate">. Retrieved <span class="nowrap">2012-10-10</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Callable+Bonds&rft_id=http%3A%2F%2Fwww.ambassador-capital.com%2Fdef%2FCallableBonds.htm%23&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACallable+bond" class="Z3988"></span></span> </li> </ol></div></div> <div class="mw-heading mw-heading2"><h2 id="External_links">External links</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Callable_bond&action=edit&section=3" title="Edit section: External links"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><a rel="nofollow" class="external text" href="http://news.morningstar.com/classroom2/course.asp?docId=5400&page=1&CN=COM">Bonds 2000</a></li> <li><a rel="nofollow" class="external text" href="http://www.investorwords.com/671/callable_bond.html">Callable Bond: Definition</a> <a 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href="/wiki/Bond_market" title="Bond market">Bond market</a></div></th></tr><tr><td class="navbox-abovebelow" colspan="2"><div> <ul><li><a href="/wiki/Bond_(finance)" title="Bond (finance)">Bond</a></li> <li><a href="/wiki/Debenture" title="Debenture">Debenture</a></li> <li><a href="/wiki/Fixed_income" title="Fixed income">Fixed income</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Types of bonds by issuer</th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Agency_debt" title="Agency debt">Agency bond</a></li> <li><a href="/wiki/Corporate_bond" title="Corporate bond">Corporate bond</a> <ul><li><a href="/wiki/Senior_debt" title="Senior debt">Senior debt</a></li> <li><a href="/wiki/Subordinated_debt" title="Subordinated debt">Subordinated debt</a></li></ul></li> <li><a href="/wiki/Distressed_securities" title="Distressed securities">Distressed debt</a></li> <li><a href="/wiki/Government_bond" title="Government bond">Government bond</a></li> <li><a href="/wiki/Infrastructure_bond" title="Infrastructure bond">Infrastructure bond</a></li> <li><a href="/wiki/Municipal_bond" title="Municipal bond">Municipal bond</a></li> <li><a href="/wiki/Global_bond" title="Global bond">Global bond</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Types of bonds by payout</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Accrual_bond" title="Accrual bond">Accrual bond</a></li> <li><a href="/wiki/Auction_rate_security" title="Auction rate security">Auction rate security</a></li> <li><a class="mw-selflink selflink">Callable bond</a></li> <li><a href="/wiki/Commercial_paper" title="Commercial paper">Commercial paper</a></li> <li><a href="/wiki/Consol_(bond)" title="Consol (bond)">Consol</a></li> <li><a href="/wiki/Contingent_convertible_bond" title="Contingent convertible bond">Contingent convertible bond</a></li> <li><a href="/wiki/Convertible_bond" title="Convertible bond">Convertible bond</a></li> <li><a href="/wiki/Exchangeable_bond" title="Exchangeable bond">Exchangeable bond</a></li> <li><a href="/wiki/Extendible_bond" title="Extendible bond">Extendible bond</a></li> <li><a href="/wiki/Fixed_rate_bond" class="mw-redirect" title="Fixed rate bond">Fixed rate bond</a></li> <li><a href="/wiki/Floating_rate_note" title="Floating rate note">Floating rate note</a></li> <li><a href="/wiki/High-yield_debt" title="High-yield debt">High-yield debt</a></li> <li><a href="/wiki/Inflation-indexed_bond" title="Inflation-indexed bond">Inflation-indexed bond</a></li> <li><a href="/wiki/Inverse_floating_rate_note" title="Inverse floating rate note">Inverse floating rate note</a></li> <li><a href="/wiki/Lottery_bond" title="Lottery bond">Lottery bond</a></li> <li><a href="/wiki/Perpetual_bond" title="Perpetual bond">Perpetual bond</a></li> <li><a href="/wiki/Puttable_bond" title="Puttable bond">Puttable bond</a></li> <li><a href="/wiki/Reverse_convertible_securities" title="Reverse convertible securities">Reverse convertible securities</a></li> <li><a href="/wiki/Zero-coupon_bond" title="Zero-coupon bond">Zero-coupon bond</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Bond_valuation" title="Bond valuation">Bond valuation</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Clean_price" title="Clean price">Clean price</a></li> <li><a href="/wiki/Bond_convexity" title="Bond convexity">Convexity</a></li> <li><a href="/wiki/Coupon_(finance)" title="Coupon (finance)">Coupon</a></li> <li><a href="/wiki/Yield_spread" title="Yield spread">Credit spread</a></li> <li><a href="/wiki/Current_yield" title="Current yield">Current yield</a></li> <li><a href="/wiki/Dirty_price" title="Dirty price">Dirty price</a></li> <li><a href="/wiki/Bond_duration" class="mw-redirect" title="Bond duration">Duration</a></li> <li><a href="/wiki/I-spread" title="I-spread">I-spread</a></li> <li><a href="/wiki/Mortgage_yield" title="Mortgage yield">Mortgage yield</a></li> <li><a href="/wiki/Nominal_yield" title="Nominal yield">Nominal yield</a></li> <li><a href="/wiki/Option-adjusted_spread" title="Option-adjusted spread">Option-adjusted spread</a></li> <li><a href="/wiki/Risk-free_bond" title="Risk-free bond">Risk-free bond</a></li> <li><a href="/wiki/Weighted-average_life" title="Weighted-average life">Weighted-average life</a></li> <li><a href="/wiki/Yield_curve" title="Yield curve">Yield curve</a></li> <li><a href="/wiki/Yield_spread" title="Yield spread">Yield spread</a></li> <li><a href="/wiki/Yield_to_maturity" title="Yield to maturity">Yield to maturity</a></li> <li><a href="/wiki/Z-spread" title="Z-spread">Z-spread</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Securitized products</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Asset-backed_security" title="Asset-backed security">Asset-backed security</a></li> <li><a href="/wiki/Collateralized_debt_obligation" title="Collateralized debt obligation">Collateralized debt obligation</a></li> <li><a href="/wiki/Collateralized_mortgage_obligation" title="Collateralized mortgage obligation">Collateralized mortgage obligation</a></li> <li><a href="/wiki/Commercial_mortgage-backed_security" title="Commercial mortgage-backed security">Commercial mortgage-backed security</a></li> <li><a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">Mortgage-backed security</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Bond_option" title="Bond option">Bond options</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a class="mw-selflink selflink">Callable bond</a></li> <li><a href="/wiki/Convertible_bond" title="Convertible bond">Convertible bond</a></li> <li><a href="/wiki/Embedded_option" title="Embedded option">Embedded option</a></li> <li><a href="/wiki/Exchangeable_bond" title="Exchangeable bond">Exchangeable bond</a></li> <li><a href="/wiki/Extendible_bond" title="Extendible bond">Extendible bond</a></li> <li><a href="/wiki/Puttable_bond" title="Puttable bond">Puttable bond</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Institutions</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Commercial_Mortgage_Securities_Association" title="Commercial Mortgage Securities Association">Commercial Mortgage Securities Association</a> (CMSA)</li> <li><a href="/wiki/International_Capital_Market_Association" title="International Capital Market Association">International Capital Market Association</a> (ICMA)</li> <li><a href="/wiki/Securities_Industry_and_Financial_Markets_Association" title="Securities Industry and Financial Markets Association">Securities Industry and Financial Markets Association</a> (SIFMA)</li></ul> </div></td></tr></tbody></table></div>    </div><noscript><img src="https://login.wikimedia.org/wiki/Special:CentralAutoLogin/start?type=1x1" alt="" width="1" height="1" style="border: none; position: absolute;"></noscript> <div class="printfooter" data-nosnippet="">Retrieved from "<a dir="ltr" href="https://en.wikipedia.org/w/index.php?title=Callable_bond&oldid=1143228883">https://en.wikipedia.org/w/index.php?title=Callable_bond&oldid=1143228883</a>"</div></div> <div id="catlinks" class="catlinks" data-mw="interface"><div id="mw-normal-catlinks" 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