Call feature

A call feature is a feature in a bond agreement that allows the issuer to buy back bonds at a set price within certain future time frames. The issuer uses a call feature to hedge against interest rate risk; bonds can be bought back and replaced by bonds carrying a lower interest rate if interest rates decline.

This feature may limit the amount of money that a bondholder might otherwise be able to earn by holding a bond, so investors demand a higher effective interest rate when a call feature is present.