Bond redemption.

Most bonds have a fixed maturity date, which means the date on which investors will get their money back.

ie; when the bond is redeemed is a date set at issuance and it does not change over the bond's life.

In addition, the majority bonds are what we call bullet bonds.

These bonds are repaid or redemption happens as a one off payment at maturity.

There is no interim amortization features or partial repayment throughout the bonds term.

Rather, investors receive their full principle in one lump sum on the maturity dates.

However, there are some notable exceptions to this structure.

One such exception are amortizing bonds.

Unlike bullet bonds, amortizing bonds repay part of the face value periodically throughout the life of the bond following a predetermined schedule.

As the bond matures, its face value declines, which means investors receive smaller interest payments as the outstanding principle reduces or is repaid over time.

These are more common in sectors like mortgages or asset backed securities.

Another variation are callable bonds.

Callable bonds still have a fixed maturity date, but the issuer holds the option to repay investors before maturity and stop the coupon payments early.

This gives issuers flexibility to refinance the bond if interest rates decline, for example, or they want to pay off the debt early.

The important thing to note is that callable bonds can only be called on certain dates, typically outlined in the bonds terms.

For instance, an issuer might only be able to call the bonds on the fifth anniversary of issuance or after a certain number of years.

For investors, callable bonds come with a higher risk since their future cash flows are less certain.

ie, the issuer may call the bond repay them early, effectively canceling the lovely series of cash flows that we were receiving.

However, to compensate for this risk, callable bonds usually offer higher coupon rates compared to non callable bonds.

Lastly, let's consider extendable bonds which function in the opposite way to callable bonds.

In this case, the bond starts with a fixed maturity date, but the issuer has the right to extend the bond's maturity on specific future dates.

When this extension occurs, repayment of the principle gets extended Into the the future, which can annoy bond holders, but the coupon rate generally increases to compensate investors for the extended time period.

So with both callable and extendable bonds, the issuer is granted an option to alter the maturity date, and in exchange, investors are compensated with higher coupon payments.

Callable bonds provide the option to shorten the bond's life while extendable bonds offer the option to lengthen it.