I believe that most bond issues can be called anytime after the call date. The call premiums (if any) and precise terms would be laid out in the bond indenture.capran wrote: ↑Wed Feb 12, 2020 9:08 amHow does one assess the probability of getting a late in the year involuntary bond redemptions? In December I received notice that US West Comm was redeeming a bond in early January. I understand why they would, given that corporations are flush with cash due to the tax breaks, and they can borrow money for substantially less than the bond they were paying (7.125%). The capital gains was after January 1, so I can plan for that by taking a little less income this year. But now worried that could happen with other bonds, at the last days of the year, which could cause me to exceed planned income limits. Are there any requirements for corporations to redeem early in a year, or could they just as easily send me notice in late December? I suppose I can wait until the last minute to determine what amount of my IRA to take and convert to a Roth, but prefer to take it earlier. any thoughts?
If I were holding individual bonds, I would assume that the bond issuer would make financially rational choices, and would call bonds that have above-current-market interest rates when they can. Then you can be pleasantly surprised when a few issuers keep the bond in place past the call date.
If you bought the bond through a financial adviser and he didn't make it abundant clear about the risks of "call date" you may want to look elsewhere for investment guidance. Another thing to consider is whether you paid a premium (more than face value) for the bond. If you paid a premium for an expected greater return on the bond and it gets called by the issuer you have lost out in that regard as well.
Bond ETFs may have a lot of callable bonds, depending on what market segment they index. Consider, for example, the muni bond index VTEB. Vanguard reports an average stated maturity of 13.5 years for this ETF, but a duration (a measure of interest-rate risk) of 5.3 years. The bond market prices the bonds which are likely to be called as if they matured near the call date, rather than at stated maturity.Uncorrelated wrote: ↑Fri Feb 14, 2020 6:35 pmAre we talking callable bonds? I don't remember in which research paper I read this, but afaik callable bonds have lower expected returns than uncallable bonds. Rather than trying to asses the risk of callable bonds, I think it would be a better idea to sell those bonds ASAP and just purchase a bond ETF, which usually contain an extremely low amount of callable bonds.
Corporate bonds are less likely to be called. VCIT (Intermediate-Term Corporate Index) has an average maturity of 7.1 years and a duration of 6.2 years; this is normal for non-callable bonds, as some of the payments come before maturity. (VCLT, Long-Term Corporate Index, does have a duration significantly less than its maturity, but that is primarily the result of the large part of the bond values from coupon payments, rather than callable bonds.)