Learn what noncallable preferred stock or a noncallable bond is and why call protection matters to investors who want more certainty about future income.
A noncallable preferred stock or bond is a security that cannot be redeemed early by the issuer under normal contract terms before its stated maturity or equivalent protection horizon.
Call protection matters because callable securities expose investors to reinvestment risk if the issuer redeems the instrument when market rates have fallen. A noncallable structure gives investors more certainty that the income stream will continue for the expected period, although market prices can still change for many other reasons.
An investor buying a noncallable bond knows the issuer generally cannot force early redemption simply because market rates moved in the issuer’s favor.
An investor says, “Noncallable means the security has no interest-rate risk.” Is that correct?
Answer: No. Call protection removes one risk, but price sensitivity, credit risk, and market risk still remain.