A callable note (and a type of callable instruments) whose coupon rate is increased (i.e., “stepped up”) at specific points in time. This note is designed to provide its holder with better returns over time, but are subject to a call provision whereby the issuer can initiate early redemption. The note has an above-market fixed interest rate (initial coupon) for a certain period since inception, and the rate starts to increase later on in the future. This will have the effect of building up pressure on the issuer to call or redeem the note before maturity (at all coupon dates beyond the first call date).

A step-up callable note comes in two basis forms: a single step-up callable note (in which the coupon gets increased only one time over the note’s lifespan) and a multiple step-up callable note (where the coupon is increased more than once). The latter may be callable every six months, and as such it effectively constitutes a Bermudan call option written by the noteholders (investors) to the issuer on the note.