Designating a bond that can be paid off earlier than the maturity date.
- If your callable bond pays at least 1% more than newer issues of identical quality, it is likely a call could be forthcoming in the near future.
- If a corporate bond is callable, then the issuing company has the right to purchase the bond after some minimum time period.
- The risk is that when buyers pay more than par for callable bonds, the interest they receive won't cover the premium if the bond is called, leaving them out of pocket.
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