Bond calls refer to which financial action in municipal securities?

Bond calls in the context of municipal securities specifically refer to the early redemption of bonds by the issuing authority before their scheduled maturity date. This financial action allows the issuer to pay off the bondholders and cease interest payments earlier than initially agreed.

Typically, an issuer may choose to call bonds when interest rates have decreased since the time of issuance, allowing them to refinance at lower rates and reduce their overall debt service costs. The call feature is explicitly stated in the bond's indenture, detailing the terms under which the bonds can be redeemed before maturity.

This action is strategic for issuers hoping to optimize their debt management, but it also carries implications for investors, who may face reinvestment risk if their bonds are called and they need to reinvest in a lower interest rate environment. Understanding this mechanism is crucial for both issuers and investors in the municipal securities market.