Callable Bonds

A bond that can be redeemed by the issuer prior to its maturity. The issuer has the right, but not the obligation, to buy back the bonds from the bond holders at a defined price and call date. If interest rates go down, but the issuer is still paying interest payments at the original interest rate, then the issuer is likely to want to call the bond because in this case it is paying more for the bond then the issuer has to be if they refinance the bond.