Why would callable bond trade at a premium due to secular changes? (Text references scarcity) I would have thought investors would prefer not to take to callable bond if bullet etc is offered?
if its scarce, makes it more valuable. ie. reduced supply
My understanding is that callable will always being supplied less than bullets, so somebody who wants to buy a callable bond have to pay the premium.
The trend is to have intermediate term bullet bond. So like KRochelli said, less and less callable bonds are in the market, making them scarce…therefore, trading @ premium.
So I get the fact that callable are more scarce, therefore command a premium, but where/how do bullets fit into the picture…?
More intermediate term bullets have decreased overall interest rate risk in the fixed income markets (I think).
sbmfj Wrote: ------------------------------------------------------- > So I get the fact that callable are more scarce, > therefore command a premium, but where/how do > bullets fit into the picture…? Intermediate Bullets are the issue types that are replacing the callables.
I dont get it. I thought bullets had to do with more of a portfolio of fixed products where all the maturity dates are centered around X date, hence the bullet sturcture. what does this have to do with intermdeiate terms, and more importantly callable bonds?
A bullet bond is just a standard coupon bond with a single principal payment at maturity.
sbmfj Wrote: ------------------------------------------------------- > I dont get it. I thought bullets had to do with > more of a portfolio of fixed products where all > the maturity dates are centered around X date, > hence the bullet sturcture. what does this have to > do with intermdeiate terms, and more importantly > callable bonds? A bullet maturity means the payment comes all at once or close to it (paid in a “bullet”). A portfolio of bonds with bullet maturities could be spread out or could be grouped together so that the portfolio payment is like a “bullet” (centered around X date as you say). Most bonds are of the bullet type. Most bonds are in the 8-15 year range of maturity. Few have options.