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Is anyone else interested in Morgan Stanley's new issue of step-up bonds?
Starting at 5% for 3 years, then moving up eventually to 9%.

These are callable, so there is only a guarantee of the 5% for 3 years, but I'm not finding many offers of 5% for shorter than 10 years holding period. Not even many offers of 4% for just 3 years holding period non-callable.

I'm a bit new at bonds, so I'm trying to work out the logic of these numbers.

I hate researching banks, because it all seems like a shell game, shifting money here and there. Looking at MS's balance sheet, I'm very confused. But from what I can gather, it seems that MS is improving its financial situation, in particular slightly lowering their debt load while the industry standard is slightly increasing debt load. Also, their bond rating has been upgraded since the big drop in 2007 across the sector.

I'm concerned that interest rates will start going up within 3-5 years. The step-up feature seems like a good way to ride any upward movement of interest rates. And I'm getting a premium for the uncertainty of the callable feature.

My big concern is that if the rates generally go lower in three years (if that is even possible!), that these MS bonds will be called because MS will be able to refinance at cheaper rates, and I will be left looking for reinvestment options that will actually be worse than today.
But say that rates stay flat or go up. Let's say that MS's individual situation improves, and its debt rating goes up and it will be able to refinance at lower rates. These step-ups will most likely be called then, but the general market will be offering the same or higher rates compared to today. I would possibly be able to reinvest then with a better choice of rates than is available today.

Is my thinking straight? What am I missing?

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