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Why should the treasury issue callable bonds? When should they exercise their right to call or...

Why should the treasury issue callable bonds? When should they exercise their right to call or redeem the bonds? Why would corporations issue callable bonds? Why should investors want to buy callable bonds?

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Treasury shall issue callable bonds to have the option of issuing new bond in place of them when interest rate fall considerably. If this is not done then the treasury has to keep paying higher rate of interest for the time bond is in market. When the rates fall considerably and yiled to call is higher than yield to maturity the treasury shall call back the bonds and issue newer ones to replace them at a lower interest rate.

Corporartions would issue callable bonds for the same reason that when rates fall, they could issue other bonds in their place and have to pay lower coupons.

Investors want to buy callable bonds because they offer a premium coupon rate as compared to similar option free bonds. In case the retes dont fall they would benefit

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