When a bond is noncallable, the issuer cannot redeem it before the stated maturity date. Some bonds have call protection for their full term, and others for a fixed period - often ten years.
The appeal of a noncallable bond is that the issuer will pay interest at the stated coupon rate for the bond's full term. In contrast, if a bond is called, you receive a lump-sum repayment of principal, which you must reinvest.
Frequently, rates are lower at call that they were when the bond was issued, which means your reinvested principal will provide a smaller yield.
- Browse Related Terms: Callable bond, Conversion price, Convertible bond, Deep discount bond, Exchange traded notes, Gilt-edged security, Indenture, Noncallable, Original issue discount, Par Value, Prerefunding, Redemption, Sinking fund, Zero-coupon bond, Zero-coupon convertible bond