If interest rates suddenly decline, those existing bonds that have a call feature are less likely to be called.

Question

Quizplus · Accepted Answer

When interest rates decline, existing bonds with higher interest rates become more expensive compared to new bonds issued at the current lower rates. Issuers are more likely to call (or buy back) these existing higher-rate bonds to reissue new bonds at the lower rates, saving on interest costs.

If Interest Rates Suddenly Decline, Those Existing Bonds That Have