Redemption features are an important consideration when investigating the investment attributes of any fixed income security.

Many bonds, including US Treasury issues, are not subject to early redemption but, in most cases, bond issuers structure debt offerings so they retain an option to redeem bonds prior to maturity.

An early redemption option is typically exercised to refinance debt when interest rates fall or to redeem bonds for legal or strategic reasons such as removing or modifying restrictive covenants in a bond indenture or prospectus. Although not the focus of this report, mandatory redemptions (sinking fund, change of control, etc.) and special redemptions (municipal housing calls from mortgage prepayments, call from insurance proceeds when a bond financed project is destroyed, etc.) should also be understood by investors.

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