medium · Debt Capital Markets Bond Instruments & Structures
A corporate treasurer is deciding between issuing a 5-year bullet bond or a 5-year bond callable after 2 years.
The treasurer should choose the callable bond if they believe:
- Interest rates will fall significantly in 2 years, allowing them to refinance at a lower cost.
- Interest rates will rise, making the existing low fixed coupon worth keeping intact.
- The company's credit rating is likely to be downgraded sharply within the coming two-year window.
- They will hold essentially no excess operating cash available to redeem the outstanding notes early.
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