Callable Step Up Corporate Bonds

A step up corporate bond is a callable security with a coupon rate that increases or “steps-up” according to a preset schedule until the corporate bond matures or is called.

The initial coupon rate is locked in and paid to investors until the first call date.

At that time one of two things will occur:

If the corporate bond is called, it will be redeemed at par, plus any interest accrued to the call date.

If the corporate bond is not called, the coupon rate is reset according to the preset schedule.

This process continues until the corporate bond is either called or reaches its final maturity.

Callable step up corporate bonds typically offer higher yields than comparable-quality, noncallable corporate bonds.