Choosing the First Call Date for Yield on American Callable Bonds
Summary
The note explains how to select the call date when calculating yield to call for an American-style callable bond, which may be called any day after its call date. It recommends using the call-notice period: if a data source provides the required notice days, add them to the current date; if the field is unavailable, the answer says to assume 30 calendar days. The issuer cannot call immediately if notice is required.
For yield to worst, the suggested practice is to calculate yields across possible call dates and choose the outcome least favorable to the bondholder. For a Bermudan bond, the first eligible date is the next scheduled call date on or after the notice period. The response says this aligns with Bloomberg’s practice, but the note offers no worked example and treats the notice-day default as a market-data convention that may require verification for a specific bond. It also briefly notes that put rights complicate which party’s adverse yield should be considered.
Key ideas
- For an American callable bond, the earliest effective call date includes the required notice period.
- When notice data is missing, the answer suggests assuming 30 calendar days.
- Yield to worst can be estimated by calculating yield at each eligible call date and selecting the holder-adverse result.
- For Bermudan bonds, use the next scheduled call date on or after the notice period.
- Put rights require considering outcomes adverse to both the bondholder and issuer.
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# Yield to call on American style callable bond # Yield to call on American style callable bond (Assuming current bond price is quoted and maturity, par value, strike price all known..) I was wondering how do we calculate yield to call on American style callable bonds after the call date has passed - meaning - when the bond can be called any day until maturity. What we use for maturity date to calculate the yield to call ? Thanks!! ## Answer by Dimitri Vulis (score 0, accepted) https://quant.stackexchange.com/a/66603 There is a field "call notice days" or something similar on Bloomberg and similar bond indicative data databases. If this field is not populated, then assume 30 days. The bond issuer must give at least this many calendar days' notice if they choose to exercise. To find the yield to worst of an American or Bermudan callable bond, the common practice is to loop on all potential call dates from today + call days until maturity, calculate the yield if the call is exercised on this date, and find the worst yield possible. Hence, likewise, the earliest possible American exercise date is today + call days, so you use that date to calculate yield to call. For a bermudan, use the next date that is >= today + call days. This is consistent with what Bloomberg terminal does. The issuer can't announce a call sooner that call days. P.S. Puttable bonds are common in Russia and India, but much less common in other markets. A yield-to-worst calculation for a bond that might be puttable and/or callable should assume that the bond issuer will look for the yield that's worst for the bond holder, but the bond holder will look for the yield that's worst for the bond issuer. You may want to think about the meaning of yield-to-call for puttable bonds.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.