In the scenario where interest rates increase, why do callable bonds have equal or better price performance than straight bonds?
Why isn’t it the case where both bonds have the same price performance?
It’s always worth searching the old topics to see if your question has been answered before,
callable bond when rates increase
from @ saurabh03121992
Callable bonds trade at a discount to otherwise identical option-free bonds.
As interest rates rise, it becomes less likely that the issuer will call the bond, so the discount decreases.