Redeemable bond

Definition

A redeemable bond is a type of bond that the issuer can repurchase from the bondholder before its maturity date. This feature allows issuers to refinance debt if interest rates decline or their credit improves.

5 Must Know Facts For Your Next Test

1. Redeemable bonds often come with a call provision, detailing when and how they can be redeemed.
2. Issuers may offer higher interest rates on redeemable bonds to compensate investors for the early redemption risk.
3. The price of a redeemable bond might be influenced by the likelihood of it being called away by the issuer.
4. Investors need to consider reinvestment risk, as they may have to reinvest at lower prevailing rates if the bond is called.
5. Callable bonds are another term used interchangeably with redeemable bonds.

Related terms

Call Provision:

A clause in a bond agreement that allows the issuer to repurchase and retire the debt before maturity.

Reinvestment Risk: The risk that an investor will not be able to reinvest cash flows at a comparable return rate after early redemption.

Callable Bond: Another term for a redeemable bond, which can be repurchased by the issuer before maturity.