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Definition: European Callable Bond
European Callable Bond are those bonds which are bound by the prefixed dates and the issuer of the bond can get back the bonds before the maturity date. The call date for European Callable bonds are pre-fixed.
The interest rates start declining as soon as the bonds are issued. Hence there is a requirement to call the bonds.
Basically, it is a simple bond which can be purchased or called by the issuer before the bond has actually reached to its maturity. The bond-issuer generally pays some premium to purchase a bond before its maturity. Bond-Issuer will call a bond if rates of interest have declined. Therefore, there is an interest rate risk associated with these types of bonds to the bondholders. Still, this risk is lesser as compared to the risk associated with the American callable bonds. They are also called as the redeemable bonds.
Similar to the European callable bonds, there are American callable bonds. However, for them there is no restriction as to when they can be called.