What is a Rate Trigger?
How Does a Rate Trigger Work?
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 Does a Rate Trigger Matter?
Rate triggers prompt change. They have major effects for investors who hold, because their has an incentive to the securities in order to save .