1. Link issuer sophistication to portfolio design: Less financially sophisticated issuers may pose greater disclosure or governance risks, but they may also use call options less efficiently. For some investors, that tradeoff may be attractive.
2. Reinterpret the yield gap: The higher yield on a callable bond from an advisor-heavy issuer can easily offset the higher call probability. Without betting on the behavior of the issuer, yield alone can be misleading.
3. Look beyond the first call date: The advance refund and redemption process is as important as the stated call provisions. Advisors facilitate these transactions, expanding the practical reach of call options.
Reference
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Brancaccio, G., and K. Kang. 2025. “Search Frictions and Product Design in the Municipal Bond Market.” Econometrica 93, no. 6: 2159-2199.
Chen, H., Cohen, L., and Liu, W. 2024. “Calling All Issuers: The Market for Debt Monitoring.” Management Science 71(8): 6367—6391.
Garrett, DG 2024. “Conflicts of Interest in Municipal Bond Advice and Underwriting.” Review of Financial Studies 37, no. 12: 3835-3876.
Garrett, DG, and Malakar, B. 2026. “The Evolving Role of Municipal Finance Advisors in the 21st Century.” Public Budget and Finance 0: 1-24.
Harris, LE, and MS Piwowar. 2006. “Secondary Trading Costs in the Municipal Bond Market.” Journal of Finance 61, no. 3: 1361-1397.
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