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Since 1985 US Treasury bonds have been issued as non-callable. I suspect this had significant impact on investors who wish buy treasuries and also impacted their hedging properties.

First, what factors motivated the decision to make future issued treasuries non-callable?

Second, what would motivate the change in policy to make them callable again?

Finally, what is the likelihood of callability in the future and the impact on treasury bond buyers?

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I don’t have particular sources so this is mostly from memory: Factors motivating the end of callable issuance:

  1. By 1985 the callables constituted a small part of the Treasury market. As such the bonds were less liquid than their noncallable equivalents, and therefore they were an expensive way for the Treasury to raise money.

  2. Callables require that the Treasury invest time and effort into the call decision, which is time consuming and can even be politically sensitive (calling bonds away from retail holders for example )

  3. The end of callable issuance coincided with the start of the STRIPS program. You cannot strip callable bonds because it is unclear what happens to the strips if the bond is called.

Because of these, I would say there is very little chance that callable Treasuries will be issued again. There is no current discussion among officials that I know of.

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