There is a passage from The Intelligent Investor that I'm trying to understand. It talks about companies refinancing high-grade bonds at more favorable rates for them.
My question is about the bold sentence.
- "As interest rates fell lower and lower" wouldn't the companies refinance again?
- Why did the bonds decline in the market? As interest rates lower, don't bonds go higher?
This is the text:
A tremendous amount of financing, consisting of the repayment of existing bonds at call price and their replacement by new issues with lower coupons, was done in the past. Most of this was in the category of high-grade bonds and preferred stocks. The buyers were largely financial institutions, amply qualified to protect their interests. Hence these offerings were carefully priced to meet the going rate for comparable issues, and high-powered salesmanship had little effect on the outcome. As interest rates fell lower and lower the buyers finally came to pay too high a price for these issues, and many of them later declined appreciably in the market. This is one aspect of the general tendency to sell new securities of all types when conditions are most favorable to the issuer; but in the case of first-quality issues the ill effects to the purchaser are likely to be unpleasant rather than serious.
Thank you so much for your help :)