When is call protection most valuable to a bond owner?

Call protection is most valuable to a bond owner when interest rates are rising. This is because call protection refers to a period during which a callable bond cannot be redeemed by the issuer prior to its maturity. When interest rates rise, new bonds are likely to be issued with higher coupon rates, making existing bonds with lower rates less attractive. A bond that has call protection will not be called away from the bondholder during this period, allowing the bondholder to continue earning interest at the originally agreed-upon rate.

If the bond did not have call protection, the issuer might choose to call the bond and refinance it at the prevailing higher rates, depriving the bondholder of their investment. By having call protection, bondholders are shielded from this risk, ensuring they receive their interest payments for the duration of that protection period even as market conditions change in favor of higher rates.