Callable Bond
A callable bond gives the issuer the right to repay the bond before its scheduled maturity date, usually after a specified call-protection period and at a stated call price.
Reviewed September 2026
Why issuers call bonds
One common reason is falling interest rates. If a company issued debt at 7% and can later borrow at 5%, it may call the old bonds and refinance at the lower rate if the bond terms allow it.
Simple example
You buy a 10-year callable bond paying 6%. Three years later, market rates fall. The issuer calls the bond at the price specified in the offering documents. You receive your principal back earlier than expected and may have to reinvest at lower rates.
Main investor risk
Callable bonds create reinvestment risk because the issuer is most likely to call when refinancing is attractive—often when market rates have fallen. That can limit the price upside compared with an otherwise similar non-callable bond.
What to check
Review the first call date, call price, coupon, yield to maturity and yield to call. Comparing only the coupon rate can give an incomplete picture.