I understand that when interest rate falls, the bondholder may be forced to return the bond and reinvest at a lower rate.
Can someone answer why the issuer would do so; what advantage does he or she have by calling it back?作者: dece2011 时间: 2011-7-11 18:37
They get to issue new debt at the lower rate.
Think about having a mortgage on a house and rates drop. You re-fi and get a new mortgage, it's the exact same thing. The company and issue new debt and reduce their future interest expense, just like a homeowner can re-fi and reduce future interest expense.
