Callable Corporate BondsBond Instruments
Certain corporate bonds can be called; these are called callable corporate bonds. You will be given your principal and the interest payment currently due, but lose all future potential interest. If you purchase callable corporate bonds, you should operate on the assumption that they will be called at the first available call date.
A bond call will become increasingly likely if the interest rate drops. A firm which can cut its interest payments by half a percentage point or more will do so, especially if the bond has a longer maturity. Firms also love to call bonds after a credit rating upgrade. They can issuer cheaper bonds after new ratings. If you can accept the return of the estimated yield to call compared to non-callable bonds, consider purchasing the bond. If you cannot, steer far clear of the investment.
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