Definition
A callable bond is a type of bond that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity. In other words, on the call date, the issuer has the right, but not the obligation, to buy back the bonds from the bond holders at a defined call price. Technically speaking, the bonds are not really bought and held by the issuer but are instead cancelled immediately.
Call Date
What is ‘Call Date’
The date on which a bond can be redeemed before maturity. If the issuer feels there is a benefit to refinancing the issue, the bond may be redeemed on the call date at par or at a small premium to par.
Explaining ‘Call Date’
The call date is important to be aware of when buying a bond. You are only guaranteed interest payments up to this date.
Further Reading
- Convertible bonds: Valuation and optimal strategies for call and conversion – www.jstor.org [PDF]
- Convertible calls and security returns – www.sciencedirect.com [PDF]
- An examination of corporate call policies on convertible securities – www.jstor.org [PDF]
- Why firms issue convertible bonds: the matching of financial and real investment options – www.sciencedirect.com [PDF]
- Anticipated information releases reflected in call option prices – www.sciencedirect.com [PDF]
- Conference calls and information asymmetry – www.sciencedirect.com [PDF]
- Liquidity and financial market runs – academic.oup.com [PDF]
- The optimal call policy for convertible bonds: Is there a market memory effect? – www.tandfonline.com [PDF]
