A call option lets the issuer repay a bond before maturity on set dates; a put option lets the investor ask for early repayment. Both are written into the offer document.
Issuers tend to call bonds when interest rates have fallen, so they can borrow again more cheaply. That leaves the investor reinvesting at lower rates, which is why callable bonds pay a little more. When a bond has a call date, look at the yield to the call date as well as the yield to maturity.
A put option protects the investor: if the issuer's position weakens, you can ask for your money back on the put date. Banks' AT1 bonds have only a call, and the bank need not exercise it.
Related
Related terms: Perpetual bond (AT1) · Yield to maturity (YTM)
Before investing, look up the issuer: all its outstanding bonds, rating history and disclosure documents.
This page is for information only. It is not investment advice, a credit rating or a recommendation to buy, sell or hold any security. Facts are taken from the issuer's own documents and the sources linked on this page; check them with the source before investing.
