Glossary

A callable bond is a type of bond that allows the issuer (the borrower) the option to repay the principal before the bond's maturity date. 📅

This means that the issuer can "call" the bond and pay back the face value of the bond, along with any accrued interest, before it's due. Callable bonds are typically issued with a call protection period, during which the bond cannot be called.

For example, a company might issue a 10-year callable bond with a 5-year call protection period, meaning the company can't call the bond before the first 5 years.

Fun fact: Callable bonds are often issued when interest rates are expected to decline. 📉 If rates drop, the issuer can call the existing bonds and reissue new bonds at lower interest rates, saving on interest payments. However, callable bonds typically offer a higher yield than non-callable bonds to compensate investors for the call risk.