A lower credit rating generally translates into high interest rates, since a worse rating implies that investing in that company carries a higher degree of risk than it did previously. Separately, the financial crisis hurt the credit ratings of a number of U.S.
In early February, it yielded just 1.74%.Ĭallable debt would give companies the opportunity to take advantage of that downward trend in rates, and to refinance debt at a lower interest rate-and thus at a lower cost to the issuer. In the past decade, falling interest rates would have been a strong motivating factor, because after the financial crisis, the Federal Reserve cut benchmark rates to record lows and held them there for years. An issuer might be able to achieve a better rate because of an improvement in its credit rating or due to changes in market conditions. Why the Trend Toward Callable?Ĭallable bonds give issuers-such as corporate and municipal entities -the option to effectively refinance their debt later at a better interest rate, much like you might refinance your mortgage. That means last year 68.4% of all new bond issuance was callable compared to just 31.2% in 2005. corporate bonds were issued in 2015-more than four times the $234 billion of callable debt issued in 2005, according to data from Securities Industry and Financial Markets Association. Like with call options, a callable bond gives companies the right-but not the obligation-to buy back its bonds at a set price.Ĭallable bonds, which are sometimes called redeemable bonds, have become quite popular in recent years. That means the issuer pays investors the call price and any accrued interest, and doesn’t make any future interest payments. Many bonds issued today are “callable,” which means they can be redeemed by the issuer at set points before its listed maturity date. If you don’t read a bond’s prospectus carefully or discuss with your broker to determine whether the bond is callable, you might end up making a lot less on that bond than you were anticipating. You buy a bond, get paid a coupon, and then get the face value back at maturity, right? Not so fast.
0 kommentar(er)
