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Looking at a portfolio of bonds, I've come across a large number of callable bonds with relatively long maturities (20 to 30 years) but very short call windows. In other words, the first and only call date (European style) will be e.g. 3 months before maturity.

I can think of two possible reasons why: either the issuer wants a small bit of flexibility for the redemption date, or there is a regulatory or similar reason.

The yield uplift for investors will be tiny - the possibility of losing 1 or 2 coupons in a 30 year bond - so that wouldn't be a reason.

What am I missing? Why would issuers do this? It's not a one-off either, I can see hundreds!

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It's because of a bank regulation called the Liquidity Coverage Ratio. This says that if you have liabilities of less than 30 days, you have to hold liquid assets against it. To avoid that , you can call the bond when it still has 3 months to go.

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  • $\begingroup$ So if I understood correctly these bonds are issued by Banks? $\endgroup$
    – nbbo2
    Aug 18, 2017 at 12:18
  • $\begingroup$ Well, there are a lot of financial institutions, yes. But also everything from aerospace and automotive down to technology, tobacco, and utilities. $\endgroup$
    – crunch
    Aug 18, 2017 at 13:49
  • $\begingroup$ Hmm I don't know why a non bank would do this $\endgroup$
    – dm63
    Aug 18, 2017 at 14:06
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    $\begingroup$ Adding a link mobile.reuters.com/article/amp/idUSL8N1B64WS $\endgroup$
    – dm63
    Aug 18, 2017 at 14:10

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