How it works (Example):
Now let's assume that three years go by and interest rates have fallen considerably. Company XYZ talks to investment bank ABC and learns that it could bonds at just 5%. This would save it millions in interest expense.
Accordingly, the 5% acts as a rate trigger, and Company XYZ decides to borrow the money back, but they lose out on seven more years of 10% payments.and use it to pay off the 10% bonds seven years early. The people who owned the 10% bonds get their
Why it Matters:
Rate triggers prompt change. They have major effects for investors who hold, because their has an incentive to the securities in order to save .