What is a Call Date?

A call date has to do with the redemption of a callable bond. Essentially, the call date is the earliest possible date that the issuer of the bond may redeem the bond. The call date is different from the maturity date on callable bonds, in that the call date occurs at some point prior to the stated date of maturity that is specified in the terms and conditions surrounding the bond issue.

One of the characteristics of the call date is that certain conditions must be present before the bond issuer is likely to exercise an early redemption. First, call dates may be extended to bond holders when the interest rates fall. When this happens, it becomes in the best interests of the bond issuer to gather in the bonds, honoring them at the old rate of interest, then immediately issuing new bonds at the new and lower rate of interest. This helps the bond issuer since the interest payments on the original bonds are only honored up to the call date. In the long run, the bond issuer will end up paying less in interest to bond holders.

A bondholder may also be interested in accepting a call date that is offered by the bond issuer. While honoring a call date means that the payoff on the investment will be less, it also means that there is some interest income earned, and that the proceeds can immediately be reinvested in another bond or other type of investment.

Generally, the terms and conditions surrounding a bond will include information about the earliest possible call date that the bond issuer can exercise. For example, the terms may specify that on a twenty year bond, the issuer retains the right to issue a call date at the ten year mark. Investors should always be aware of the provisions for a call date that are part of any bond issue.

Keep in mind that just because a bond issue comes with specifications related to a call date, that does not necessarily mean that the issuer will exercise the call date at any point in time. Unless there is a sound financial reason for invoking a call date, it is likely that the bond will remain in effect and earn interest income all the way through to the maturity date.