A term repo transaction in which the repo rate is fixed, while the lender of cash has the right to terminate the agreement before maturity date, or call back some of the cash lent out.

A callable repo has an embedded interest rate call option which allows the lender to exercise when necessary. This option will be exercised if interest rates rise during the repo’s life. In this case, the lender can call back the debt in order to reinvest it at the higher market rates. In return for the embedded call option, the lender accepts to receive a fixed rate lower than a standard repo rate.