Municipal Bond Forum
How to win with call options
Q
How important are the early call options when purchasing long-term bonds? Many of my long-term bonds paying 6% are now being called, so I am losing the benefit the longer term afforded me.
A
James A. Klotz responds:
As you are finding out, call options are very important, particularly when purchasing bonds at a premium.
An investor should always know when the issuer can exercise the optional call feature and the yield that will result if it is exercised. This information is printed on your purchase confirmation.
We believe bonds trading above 100.00 invariably provide the best values in the municipal bonds market.
Our rule of thumb is: When making a purchase, be certain that the yield-to-call is greater than the yield on comparable quality bonds maturing in that year and the yield to maturity is greater than the yield on a new issue par bond of the same maturity.
If you follow these guidelines, you win either way.
Start here.
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This report is produced solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This report is based on information obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed.