What happens when a bond is called but the market value is above par?

Factual Questions
1

I was reading on another forum about a press release where the US Treasury is calling a bond for redemption at par value:

http://www.treasurydirect.gov/instit/annceresult/press/bondcall07152009.pdf

Because the coupon is 11.75%, my understanding is the market price of the bond should be well above par to bring the yield to maturity in line with the current market yield/rate of other ~5 year treasury bonds.

Does this mean if I had bought one of these bonds a week prior to this press release, I am screwed and will be out the difference between par and the market price I paid?

2

Since they’re exactly 5 years from maturity, it appears that Nov. 15, 2009 is the first call date. I wasn’t aware that US Treasuries were ever callable, but I guess I was wrong.

However, it’s a good place to point out that bond traders and investment managers monitor the “yield to worst” along with the “yield to maturity”. The yield-to-worst accounts for any call provisions.

3

Pre-1985, the Treasury issued callable bonds.

4

The market price of a callable bond takes the possibility of call into account. In this case, call has long been a virtual certainty, so the market price will have converged to the call price as the call date approached. Nobody gets blind-sided or screwed.