Hard Call Protection

What is ‘Hard Call Protection’

If a callable bond is issued, there is a window of time throughout its existence during which the issuing business is not authorized to redeem it. In order to entice investors, hard call bonds include this feature. This is because even if interest rates fall, which would normally result in a bond being called and reissued at a lower interest rate, hard call protection guarantees investors will receive the stated return for a fixed number of years before the bond can be called. It is usual for this protection to endure for the first three to five years of the bond’s lifespan.

“Absolute call protection” is another term for this feature.

Explaining ‘Hard Call Protection’

It is possible that the bond will continue to be partly safeguarded by soft call protection even after the time of hard call protection has expired. This feature requires the existence of certain criteria before the bond may be called. The issuer would not be allowed to call convertible callable bonds unless the price of the underlying stock climbed by a specified percentage point over the conversion price, as would be the case in the case of convertible callable bonds.

Callable bonds provide a higher rate of return due to the possibility that the issuer may repay them before the bond’s maturity date. One sort of bond that often incorporates call protection is retail notes, which are an example of a type of bond.

Hard Call Protection FAQ

What is call protection on a loan?

What is a hard call protection?

In a callable bond, a hard call protection clause or absolute call protection is a provision stating the issuer will not be able to exercise the call and redeem the bond before a set date, which is commonly three to five years after the date of issuance.

Further Reading

    • Convertible bond design and capital investment: The role of call provisions – onlinelibrary.wiley.com [PDF]
    • An empirical comparison of published replication research in accounting, economics, finance, management, and marketing – www.sciencedirect.com [PDF]
    • Information: Hard and soft – academic.oup.com [PDF]
    • Financial pressure and the behaviour of public enterprises under soft and hard budget constraints: evidence from Italian panel data – www.sciencedirect.com [PDF]
    • Protecting health in hard times – www.bmj.com [PDF]
    • Small businesses and international entrepreneurship in the economic hard time: A global strategic perspective – search.proquest.com [PDF]