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Yes, I think you are correct. A bond selling at a premium over par can be called out from under you at a loss. Hence people tend to avoid them.

I have just been through this with my yield stocks list, mostly trust preferred stocks, ie bonds listed on major exchanges and traded as preferred stocks.

The bond market was traumatized during the meltdown last fall, and there was a flight to quality, especially to treasuries. Bond prices fell sharply. They have been recovering gradually. But I notice at this point that most of the A and higher bonds are close to par. Many lesser issues continue to have not only higher yield, but also potential for nice capital gains when they are called.

So it seems the discount is an additional incentive to take more risk in the current market. But gee, who buys junk bonds in mid recession? Hang on for dear life if you have them, but diversification sure is nice. I wouldn't load up on these things.
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