Kaplan CR has a question asking if callable bonds can outperform non-callables after a bond bull market when rates start to increase. Answer is agree, as “declining interest and negative convexity result in the duration of callable bonds declining… That reduced duration is beneficial during a subsequent initial rise in interest rates”
Relative to option free bonds, I thought callable bonds limit the bonds upside potential not downside protection. Didn’t realize that durations post bull market will stay depressed, thus providing downside protection.
Can someone explain this?