CDs Called Early

[frayne]

Recently had a couple of CDs called. They were set to mature in 2024 paying about 2%. I have funded a five year CD ladder composed of both callable and non callable CDs. First time I can remember ever having a CD called early. Seems odd and wonder if I'm missing something. Thoughts.

 

[audreyh1]

Interest rates dropped suddenly so CDs were called?

 

[njhowie]

That's the risk you take when you buy callable CDs.

Everything that is callable is being called, simply a matter of when the issuing bank gets around to it. I've even had a couple below 2% called with only 1 year left until maturity.

I have 13 different ones being called in the next two weeks with original maturities from 2024 to 2035.

They are being called because the interest rates on them are significantly higher than current rates.

 

[GravitySucks]

Had a Agency Bond due in June called in March. First time it happened. Not a big deal as it's money set aside for this year's expenses anyways.
I did make me wonder what was going on under the hood of the bond funds though...

 

[Dawg52]

I had one called recently. I usually buy the noncallable ones. Must have had a brain fart on this one.

 

[kskmfire]

This has happened to us MANY times with bonds and CDs.

That's why I look for YTC more than YTM.

 

[ejman]

As long as LP's are not called. I have a lot of those.

 

[Ready]

For those buying callable CDs I hope you are getting a better return than traditional bank CDs since those can be cancelled with a fixed early term penalty but no other interest rate risk. Every time I look at them the spread is almost zero, which leaves me wondering why anyone would buy them.

 

[Ready]

The reason why anyone would buy them is because there is a spread, not almost zero. If you were only seeing spreads near zero, then your bank/broker is not very good when it comes to CD offerings.

I own many callable CDs, and it's absolutely fine with me that they are being called now. Every one of them I purchased in the secondary market below face value. As a result, my effective yield from the time I purchased to the call date is well above the original yield to maturity on the purchase date.

And what was the spread?