An embedded option of a callable bond that gives the issuer the right to redeem all, or part of the bond, before the specified maturity date.
Callable bonds present investors with a higher level of reinvestment risk than non-callable bonds. As such, callable bonds have to offer a higher yield than otherwise similar non-callable bonds.
Some callable bonds come with a call protection period.
European-style callable bonds allow the issuer to redeem only on one specified call date.
American-style callable bonds allow the issuer to redeem anytime after the first call date.
Bermuda-style callable bonds allow the issuer to redeem only on specified dates after the first call date.
See also: Make-whole call provision
Compare: Put provision