Callable security

A callable security is a financial instrument that allows the issuer to repurchase it before the maturity date. An issuer includes a call provision in a security in order to have the flexibility to refinance if interest rates decline. For example, a bond issuer can use it to buy back a more expensive bond and replace it with a bond that carries a lower interest rate. However, the presence of a call feature reduces the value of the security for investors, who are therefore willing to pay less for it.