The Bond Buyer published my commentary Taming Premium Bonds earlier today. Although callable premium bonds are very popular in the municipal market, I argue that they hurt issuers and the market. Market rules dictate that the proceeds to the issuer compensate only for high coupons to the call date. The compensation for high coupons past the call date is buried inside the call option, making a refunding almost inevitable. These bonds also make the market more opaque. As a solution, I propose that the call premiums be set to breakeven levels so that the price-to-call matches the price-to-maturity. Please see the article for the details.
Update: This not a new idea. I applied it as a financial advisor many years ago, and it is also the basis for one of the puzzles on this blog.