Callable Bonds & CDs being called

[jldavid47]

I have no qualms about purchasing callable CDs and agency bonds. There are always plenty of opportunities to reinvest the funds at favorable rates and even if you are getting a lower rate it is likely you are coming out ahead.

For example, I got a call notice for a 13 month CD purchased 9 months ago yielding 5.55%. At the time, similar duration non-callable CDs were yielding 5.3%. I'm reinvesting for the rest of the term at 5.25%. The blended yield (9 months at 5.55% and 4 months at 5.25%) comes out to 5.46% which is still better than the 5.3% I could have locked in last July.

Will it always work out that way? No. Was it worth my time? Yes. YMMV.

 

[jldavid47]

We have 4 of 25 callable CDs and 3 have passed the 1st date surprisingly. 2 are 5 yr @ 4.75 & 5.25%. Kinda surprised the 5.25 didn't get called.

I have yet to have anything (CD or agency bond) yielding 5.5% or below get called and given the continued upward pressure on rates since the end of last year I expect that to continue.

I have a 10-year FHLB bond paying a 6.4% coupon which has been callable daily since March 1st still alive in my portfolio. I'm a bit surprised about that, but I am more than willing to take a 6.4% yield for the next 9 years, 4+ months if they want to keep paying it and even if it gets called I can still reinvest in another callable FHLB 10-year at 6% which is still fine with me and still far higher than any 10-year fixed rate.

 

[Finance Dave]

I don't avoid them if I can get a reasonable premium. What's reasonable? Well, there's no firm answer for that. I'd estimate we have about 40 CDs or T-bills currently and over the past year maybe 3 have been called.

 

[imbatman]

I have definitely had a number of calls come in, some through ER (extraordinary redemption) even earlier than the call date. I am now willing to forgo a quarter point or so of interest on a comparable bond if I can avoid ER provisions.

 

[pb4uski]

One thing to be aware of is that for most corporate bonds that show as callable the first call date is only about 6 months or less prior to maturity so the call risk is negligible. I think that they do this to give them flexibility in refinancing.

IOW, if I find an attractive 5 year corporate bonds that is callable in 4-1/2 years, I don't care much that it is callable. You have to look at the details.

 

[Dash man]

I’ve had two CDs called this year. I just reinvest them into CDs that are only slightly lower, but still higher than any noncallable CDs.