Final answer:
The correct answer is D) Decrease, > (greater than), indicating that bonds are usually called when interest rates decrease, and callable bond yields are higher compared to non-callable bond yields.
Step-by-step explanation:
Bonds are generally called when interest rates decrease. This is because issuers can refinance the debt at a lower cost. As for callable bond yields compared to non-callable bonds, callable bonds typically offer a higher yield than non-callable bonds to compensate investors for the additional risk that the bond may be called away before its maturity date. Therefore, the correct answer to the question would be: 'Bonds are called when interest rates decrease, and callable bond yields are greater than non-callable bonds,' which corresponds to option D) Decrease, > (greater than).
When comparing corporate bonds and U.S. Treasury notes, it is important to note that corporate bonds tend to offer a higher interest rate than Treasury notes due to the increased risk of default. Understandably, investors require higher compensation for bearing this additional risk.