Callable Bond
A bond that gives the issuer the right to redeem (call back) the bond before its maturity date at a specified call price, usually at or slightly above par. Issuers call bonds when interest rates fall so they can refinance at lower rates \u2014 which is bad for investors who must reinvest at lower yields. Callable bonds pay higher yields to compensate investors for this call risk (Yield to Worst is the relevant metric). The price consequence is negative convexity — appreciation caps as rates fall because the call gets closer — the same dynamic that dominates Mortgage-Backed Security (MBS) pricing.
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Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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