Callable Bond

A Callable Bond is a fixed-income security that grants the issuer the right—but not the obligation—to redeem the bond before its stated maturity date at a predetermined call price. Issuers exercise this option when interest rates fall, allowing them to refinance at a lower cost. For investors, callable bonds carry reinvestment risk—when the bond is called, proceeds must be reinvested in a lower-rate environment. To compensate, callable bonds typically offer higher yields than non-callable bonds with similar credit ratings.