If a bond is callable and if interest rates in the economy decline, then the company can sell a new issue of low-interest-rate bonds and use the proceeds to "call" the old bonds in and effectively refinance its debt at a lower rate.

Question

Quizplus · Accepted Answer

If interest rates in the economy decline, it becomes more advantageous for the issuer of a callable bond to sell a new issue of low-interest-rate bonds and use the proceeds to call in the existing bonds. This allows the issuer to refinance their debt at a lower rate and save on interest expenses.

If a Bond Is Callable and If Interest Rates in the Economy