Why would issuers not be willing to pay for this incentive if they feel that interest rates will continue to decline?
What will be an ideal response?
If issuers feel that interest rates will continue to decline, then they are willing to pay a higher call premium and/or issue callable bonds with a higher coupon rate. However, if they believe the decline is limited due to prior declines, then they would not be willing to pay much for the incentive to issue callable bonds. That is, they would not be willing to issue callable bonds with too high of a premium or with too high of a coupon rate.Also, to issue callable bonds, investors must demand them and be willing to take accept what issuers feel are reasonable terms. Issuers will not issue callable bonds if they cannot get the terms they want.
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