A Callable Bond, also called as a redeemable bond, is one that can be redeemed by the issuer before the maturity date. A callable bond allows the issuing business to pay off its obligation ahead of schedule. If market interest rates fall, a company may opt to call their bond, allowing them to re-borrow at a reduced rate. Callable bonds compensate investors for this risk by often offering a higher interest rate or coupon rate owing to their callability.While there are risks associated with owning any type of security, I believe that the potential benefits of owning a callable bond outweigh those risks. For example, if you owned an investment-grade corporate bond and it was called away prior to maturity due to falling interest rates in the market, you would likely reinvest that money into another investment-grade corporate bond at a lower yield than what you originally received on your original investment. This is because when interest rates fall overall in the market place, newly issued bonds will have lower yields than older ones (since investors demand more compensation for taking on additional risk).In addition, many companies use proceeds from their issuance of debt securities such as callable bonds - which tend not have as high borrowing costs as straight bank loans - to finance new projects or acquisitions rather than using cash on hand.. By investing in these types of securities then you may be indirectly lending money to businesses who are expanding and growing which can lead potentially lead create jobs and spur economic growth.Overall we believe there are compelling reasons why an investor should consider buying into callable securities especially during times when interest rates are low and volatility is high in the market place.
