Call Provision

A call provision in a bond is a provision that allows the bond issuer to pay off part or all of a bond's principal before the maturity date. A call provision is beneficial to the bond issuer because it allows the issuer to pay off the bonds if interest rates decline (and to issue new debt at the lower interest rate). A call provision is thus detrimental to the bondholders since the bondholders will have to reinvest their proceeds at the lower interest rates. If callable, bonds are normally called at a (call) premium.