Municipal Bond Forum
Protesting bond calls
Q
What do you think of muni buyers (and for that matter, other bond buyers) rallying together to stop issuers from calling bonds? When we buy a bond, essentially, we are committing to the issuer to hold that paper until maturity, and with that commitment, we expect a certain return to that point in time. However, when it suits them, they call the bond. Most often, that means that we have to reinvest those funds at a lower rate of return. I know that there is general market into which the bond can be sold by us, but we don’t have the right to go to the issuer and ask for our money back. Has such a move ever been seriously considered?
A
James A. Klotz responds:
Although your thoughts may be appealing to other bond buyers, we would not anticipate a grass roots effort in this regard. This is primarily because the terms of purchase are very clear. The buyer is aware of the issuer’s call options before entering into the contract and the yield is always computed to the “worst case” call.
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