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Answer:
Dear
BuyandHolder,
This
has nothing to do with your mother's will. Her bond
(or bonds) that you now own came with what's known
as a "call" feature. This is a specific provision
that allows the issuer of the bond to recall the bond
(or ask for it back) from the owner before it reaches
maturity.
The
call provision, which specifies the earliest date
the issue can be called in, also indicates if the
repurchase is at a fixed price or at a series of prices.
When
calling is likely to happen...
The
most likely reason for a call to be activated is that
the issuer believes it is advantageous to retire older
bonds because they are paying higher interest rates
than those being offered on newer bonds.
As
you know, interest rates are slowly heading back up,
so the issuer of the bonds you inherited probably
wants to retire the high-paying bonds and replace
them with bonds paying lower rates -- while that is
still possible.
Future
protection...
Should
you invest in bonds in the future, it's important
that you know about call protection. This prohibits
an issuer from calling a bond during the early years
of the bond's life. Municipal and industrial bonds
typically have 10 years of call protection. On the
other hand, bonds issued by public utilities often
have just 5 years of protection.
Of
course, the longer the call protection period, the
better it is for the investor -- because calls, as
mentioned above, almost always take place during periods
of reduced or lower interest rates.
Bonds
that can't be called...
You
should also know that, unlike most long-term corporate
and municipal bonds, U.S. Treasury bonds rarely
can be called prior to their maturity date. So, if
you had purchased Treasuries back when interest rates
were high, you would be fully protected today. Uncle
Sam must keep on paying the high rate until the bonds
mature.
$Tip:
There are also some corporate and municipal bonds
that are noncallable (NC).
Bond
mutual funds...
One
way to avoid dealing with these annoying bond calls
(in addition to purchasing noncallable ones) is to
buy shares in a closed-end bond fund. BUYandHOLD
offers 5 of them. Click
here for details -- be sure to read the "Closed-End
Fund Primer". To summarize, BlackRock's current
yields are as follows:
Municipal
6.31%
California 6.12%
New York 5.89%
High Yield 8.99%
Government 6.82%
Good
luck!
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