Comment by phil21

The same way callable bonds command a higher interest rate than non-callable do. If the bond holder can just decide that tomorrow it’s cheaper for them to pay off the bond vs pay me the coupon on it, it’s worth less to me as a buyer. I lose if interest rates go lower (bond is paid early) or higher (I am now holding a bond worth less than a newly issued one).

If you look through the bond market you will sometimes see bonds issued by the same company or agency both as callable and non-callable, the callable bonds are usually .5-1% lower even when issued on the same date.