On the Schweser note, " Call feature give the issuer the opportunity to replace higher-than-market coupon bonds withe lower-coupon isuues." Since the issuers have to pay higher coupons, I couldn’t figure what’s the advantage for them do so? Could someone help to answer this?
The issuer would call the bonds back and issue new bonds at a lower rate (if market conditions were favorable for the issuer, exe. they originally issued the bonds when the economy was weak and yields were high, but as the economy recovered, yields go down so they call and issue new cheaper debt)…the call feature makes investors require a slightly higher yield than an otherwise identical bond w/out the call.