Many issues of corporate bonds are callable by the corporation. This feature is put in to allow the issuer to call back the bonds early and refinance the debt at a lower rate.
Generally callable issues carry more risk to the investor. This is because if the bond is redeemed early, the investor will most likely have to reinvest at lower interest rates.
Because of this uncertainty, these issues tend to be offered at a higher yield or they are called at a premium over par. If the corporate issue is called above the price an investor paid - their yield to call or YTC will be higher.
Bonds can be called as a "one time" or on set dates or even ongoing after the first date. As long as the provisions are disclosed, the dates and prices are at the company's discretion.
http://www.aitraining.com/ytc.htm
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1 comment:
The yield to call will normally be higher than the yield to maturity on discount bonds. Few, if any issues are called at a price below par.
If someone buys a bond at a discount price, they will get their par or more faster if called.
Debenture Bonds
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