medium · Debt Capital Markets
What happens to the YTW of a callable bond if the issuer's credit spread narrows significantly while benchmark rates remain unchanged?
- The YTW becomes equal to the coupon rate.
- The YTW increases because the bond is now higher quality.
- The YTW becomes irrelevant as the bond is now certain to be called.
- The bond price rises, likely causing the YTW to fall as it anchors to a call date.
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