For a non-amortizing security, the call option limits price when rates fall. Investors are not willing to pay large premiums if the issuer can redeem the bonds prior to maturity. Many callable securities remain callable past the initial call date. For example, the issuer of a five-year bond callable in two years, often referred to as “five, non-call two”, may typically call the bond at the end of two years, or on any coupon payment date thereafter, if the option is Bermudan. Investors need to understand all possible dates that issuers can call their bonds.
