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Subject:  Buying Callable bonds Date:  5/10/2013  10:14 AM
Author:  globalist2013 Number:  34914 of 35877

Risks of Investing in Callable Securities
Premium callables trade at “yield to call”—meaning that the price of the bond is calculated with the assumption that the bond will be called—and carry extension risk. If interest rates rise before the end of the lockout period, the bond’s embedded option becomes worth less, as the security is less likely to be called. Discount callables trade like bullets—non-callable bonds—to maturity and carry compression risk. If interest rates fall, they become more likely to be called. Callable securities that are at the money—where interest rates are very close to the point where the option will be exercised—have the