Measuring the Effect of Callability on Bond Yields.

The article examines the effect of callability on bond yields in the U.S. The author also focuses on the effects of default risk and relative security supplies on yield spreads. A model of the effect on yield spreads of callability is developed and compared to one estimated by Timothy Q. Cook and Patric H. Hendershott. Other factors affecting the yield spreads of U.S. corporations are discussed. The author concludes that the proxy for the effect of callability on yield spreads presented in the article is superior to the one developed by Cook and Hendershott.