What feature allows an issuer to buy back a bond before its maturity?

The call feature allows an issuer to buy back a bond before its maturity. This feature provides the issuer with flexibility, as they can redeem the bonds at predetermined times before the maturity date, typically at a set price. This option is beneficial to the issuer when interest rates decline because they may wish to refinance their debt at lower rates. By calling the bond, the issuer can effectively lower its cost of borrowing.

The existence of a call provision affects the bond's yield, as investors typically demand a higher yield for callable bonds due to the risk of losing their investment earlier than expected. This feature is driven by market conditions and can lead to decisions by the issuer to optimize their financial situation.