A redemption is a return of a bondholder’s principal investment either at par value or a premium price. These redemptions can occur either when a bond matures or when the bond is cancelled prematurely by an issuer.
For example, suppose that a municipality issues a 10-year general obligation bond that an investor purchases at the time of issue. After five years, the municipality may redeem the bonds and return the principal to the investor if it is permitted in the contract.