Callable obligation definition

What is a Callable Obligation?

A callable obligation is a feature attached to a debt security that gives the issuer the right to redeem the security prior to its normal maturity date. The feature typically mandates that the issuer cannot exercise this option for a number of years after the original issuance date, and also mandates that the redemption must be conducted at a price higher than the face value of the security. This feature is usually attached to a bond issuance, so that the issuer can redeem the bond if interest rates fall at some point in the future. The bond issuer then redeems the bonds and replaces them with bonds that carry a lower interest rate.