Micholien

Consider a case when the company has issued a bond with a call option at 8% yield.

Now when the bonds are callable and the market yield has decreased to 6%, the company can very well call the 8% bonds and in turn raise the funds needed by issuing new bonds with yield of 6%. Thus the callable bonds provides a huge advantage to the issuing company as it has to pay just 6% instead of 8%.

The company calls the bonds only when the market yield decreases and hence the call option has no effect whatsoever if there is an increase in the market yield.