If a bond is called at the first call date, can I end up getting zero interest?

[slackmax]

BTW, I have not bought this bond yet !

It's a 2 year bond with the only coupon date being in May, 2026 ( which means I earn no interest until the coupon date?)

 In my case the first call date is 6 months after the  date of purchase. Payment is annual. Therefore seems like if they called it at first call date I would never have gotten an interest payout at that point, and would just get my principle back, but with zero interest. No? Yes? Maybe?   It depends?

For simplicity, please someone just tell me if it is possible or not!

Thanks     

edit to add:  I found this on AI :  is the following correct?

"For a non-make-whole bond that is called before the first coupon date, the holder will receive any accrued interest earned up to the call date, but no future coupon payments. The issuer will pay the call price (usually the face value) and any accrued interest, and then the bond is retired. "

It is not a "make whole" bond. It is a call@100 bond.       

The AI assumes I will be credited with interest even before I reach the first coupon date. True ?

[svosavvy]

I am not an expert only a layperson.  The bonds I have traded over the years and it would seem as a general rule when you sell your bond you get the accrued interest for the time you held, I think most of the time it is to the business day.  The buyer of the bond generally pays you your share of the interest then they collect the full coupon at the distribution date.  It is usually a line item in the trade/transaction record.

In this case your bond is being called that means the issuer is the buyer and it would seem to me they would pay the accrued interest as condition of executing the call.  You mentioned you haven't bought it yet, that would mean you would be paying the interest accrued to the owner in order to collect full coupon at distribution if I am reading this correctly. 

[svosavvy]

If it is what you say "call100" that would generally mean they can call it at 100($?), but, they don't have to.  If I were the issuer I would say to myself is this loan that I issued yielding me advantageously, if yes, don't call it.  Or is this loan I issued killing me in interest then yes call ASAP.

[slackmax]

Thanks for responding!

It is actually a 'new issue' CD, which happens to be callable. I will possibly be buying this CD, and then hope it is not called, but if it is, of course I want the interest I have already accrued, plus principle back.  That would be OK with me, since I would have had the advantage of the higher rate than a noncallable CD, for however many months I had it prior to the call, and the only negative to me is having to find another CD to buy. Seems like a win to me, if they call it or don't call it. I suppose I was thinking it was too good to be true,  what's the catch, lol.   I'm surprised more people don't buy callable bonds.  I guess it's just the hassle of tracking them all.     

[MustacheAndaHalf]

It sounds like this bond has a clause to prevent you making money off a drop in bond yields.  Normally when yields fall (like when the Fed fights recession), bonds increase in price until their yields match the newest rates.  It sounds like if your bond rises in price, the issuer gets to buy it back at a lower price.  If yields go up, and the bond loses money, you're stuck with the loss of principal.  If the bond has capital gains, you lose them... if the bond has capital losses, they're all yours.

If you haven't read any books on bonds yet, The Bond Book was the most helpful one for me.  But I ultimately decided to stick with bond ETFs, where the professional manager of the ETF can figure out those complex bond terms for me.

[vand]

Bonds trade with a "dirty" price which accounts for the accrual of interest that is yet to be paid, so no you don't just lose out on the interest by selling before the next coupon date.

[slackmax]

 I am not planning on selling the bond. I'm just worried about what happens if it is  called.  Doesn't the 'call@100', which the bond has, mean I get all my principle back ?   

[ChpBstrd]

I am not planning on selling the bond. I'm just worried about what happens if it is  called.  Doesn't the 'call@100', which the bond has, mean I get all my principle back ?   

You said earlier it was a CD, so in that case they'd just give you back your principal plus whatever interest you'd accrued up until that point. With bank CDs you leave instructions about what they are to do with the proceeds of redemption, such as reinvesting it in a new CD or putting it in a checking/savings account. If you said to reinvest it, they might, for example, call your CD paying 5% interest and put you into a new CD paying 3%.

If it had been a bond, it depends on what you paid for the bond. E.g. if you pay $1050 for a bond that is almost immediately called at $1000, then you might lose money on the deal if you earned less than $50 in interest. If instead of a premium bond you purchased the bond at a discount to par value, for example $950, and then it was called for $1000, then you'd have made a $50 capital gain plus whatever interest was accrued during that time.

[slackmax]

Thanks for the replies !

[habanero]

If a bond is callable on the coupon date you recieve the coupon if the bond is called that date.

Some debt, like US t-bills to take the most obvious example, don't pay a coupon at all. They are issued at a discount, say you pay 99 dollars for 100 dollars face value when you buy it and at maturity you get 100 back so the "interest" earned is the difference between what you bought for and what you get back at the end. As such debt gets closer to maturity the price will move towards 100 reflecting the lower "interest" left to earn.

So you can both earn "interest" and accrue "interest" without the bill actually paying any coupon at all.