What does a callable bond allow the issuer to do?

A callable bond allows the issuer to redeem the bond before its maturity date. This feature provides the issuer with flexibility, particularly in a declining interest rate environment. If interest rates fall, the issuer can choose to call (or redeem) the bond and reissue new debt at a lower interest rate, thereby reducing their borrowing costs. This ability to redeem the bond early can be advantageous for corporate issuers and municipalities that wish to manage their debt portfolio proactively.

The other options present different concepts or features that do not apply to callable bonds. Redeeming a bond at face value at any time is not accurate, as callable bonds can only be redeemed according to the terms specified in the call provision, usually during a predetermined time frame. The option regarding converting the bond into equity refers to convertible bonds, which contain a different feature. Finally, issuing additional bonds against the callable bond does not relate to the bond’s callable nature and is not part of what a callable bond allows.