Callable Bond Law and Legal Definition

Callable Bonds are convertible securities. The issuing corporation under specified conditions may redeem all or part of it before maturity. The term also applies to preferred shares that may be redeemed by the issuing corporation. Issuers often choose this option when the market interest rate falls below the bond's interest rate, or the issuer's ratings is raised by the bond rating agencies and, therefore, the issuer can raise funds at lower cost. Ordinarily, bonds cannot be redeemed before a certain period.