Bonds that are callable carry more yield risk or reinvestment risk if they are called. This is because most bonds are called when interest rates are lower. Call protection is the period of time between when the bond is bought to when the first call date occurs.
The longer the callable date ism the greater the period of call protection to the bondholder. This will usually result in a higher price - lower yield to purchase than a bond with a fast call date approaching. The risk is greater on the near date bond and so the market will price that in with a cheaper price. Both of these features has a place in most portfolios.
The bonds with longer call protection will give an investor more predictability and stablity but yield will be lower vs. non-callable fixed income securities. There is always a risk to price component to the investor and the issuer.
Issuers would prefer to have shorter protection periods as it limits their refinancing ability when they would want to call a product back.
Yield to call and yield to maturity would be based on more than the protection period. The redemption price the issuer is paying and the price the investor paid for the issue would have to looked at to truly determine if the yield to maturity would be higher or lower than call yield.
Bond Investment Books
The longer the callable date ism the greater the period of call protection to the bondholder. This will usually result in a higher price - lower yield to purchase than a bond with a fast call date approaching. The risk is greater on the near date bond and so the market will price that in with a cheaper price. Both of these features has a place in most portfolios.
The bonds with longer call protection will give an investor more predictability and stablity but yield will be lower vs. non-callable fixed income securities. There is always a risk to price component to the investor and the issuer.
Issuers would prefer to have shorter protection periods as it limits their refinancing ability when they would want to call a product back.
Yield to call and yield to maturity would be based on more than the protection period. The redemption price the issuer is paying and the price the investor paid for the issue would have to looked at to truly determine if the yield to maturity would be higher or lower than call yield.
Bond Investment Books