Municipal Bond Forum
‘Extraordinary’ redemption is just that
Q
You discuss the advantages of premium bonds in your article, “The Smart Buy in Today’s Market,” but if the bond has an extraordinary call or a sinking fund provision, the figures don’t look quite so rosy.
A
James A. Klotz responds:
Extraordinary redemptions are present in virtually every bond issue if the proceeds are being utilized for a specific facility or project.
The exercise of these provisions is extremely rare and the requirements are extremely restrictive (and for these reasons are not factored into the yield calculations). They can only be exercised as a result of a certifiable catastrophic event, usually prior to the completion of the project. These rare events should not be a deterrent to taking advantage of the better-than-market returns available with premium bonds.
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The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.