What factor makes call protection valuable for bond investors?

Call protection is valuable for bond investors primarily in the context of falling interest rates. When interest rates decline, existing bonds with higher coupon rates become more attractive compared to new bonds issued at lower rates. As a result, issuers often decide to call (redeem) these higher-paying bonds before maturity in order to refinance at a lower interest cost.

Call protection refers to a period during which the issuer cannot redeem the bond early, preserving the investor's expected interest payments. This is particularly beneficial during falling interest rate environments because it protects the investor from the risk of having their bonds called away prematurely, allowing them to continue receiving higher coupon payments until the bond matures. Conversely, factors like stable interest rates, rising unemployment, or increasing coupon rates do not inherently enhance the value of call protection for bond investors in the same way that falling interest rates do.