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- Title
Call risk in municipal bonds.
- Authors
Van Horne, James C.
- Abstract
This article focuses on the call feature of municipal bonds, a factor of considerable importance as bonds issued in past periods of high interest rates emerge from their deferred call protection. A call feature is an option giving the borrower the right to buy back a bond before it matures. The call option is valuable to insurers if interest rates decline because they can refinance at a lower interest cost. A matter of less concern is the stepdown in call price which can occur either every year or very several years. The amount of stepdown does not appear to be consistent consideration in bargaining for funds and the investor's call risk in a high interest environment is not mitigated by a slower stepdown.
- Subjects
MUNICIPAL bonds; BONDS (Finance); INTEREST rates; INVESTMENTS; OPTIONS (Finance); FINANCE
- Publication
Journal of Portfolio Management, 1987, Vol 13, Issue 2, p53
- ISSN
0095-4918
- Publication type
Article
- DOI
10.3905/jpm.1987.409089