Question

What is the difference between a callable bond and a convertible bond?

Answer 1

Explanation:Convertible bonds. Are corporate bonds that can be converted by the holder into the common stock of the issuing company.

Callable bonds. Called provision option held by the company to repurchase the bond at specific price. Is also called redeemable bonds, jump up etc. While most callable bonds are coupon bonds.

There are no big differences between the two, convertible bonds are often callable, eg corporate bonds can be convertible/callable or the both.

Answer 2

A callable bond is a bond that can be called back in by the issuer prior to maturity. For example, a 10 year bond issued today could be called back in 8 years.

A convertible bond is a bond that converts into the equity of the underlying company. For example, the bond of XYZ company can be converted into the stock of XYZ company under certain conditions.

A convertible bond has the advantage in that there is upside when the owner converts into stock.