A bond quote provides the current price at which a bond is traded in the market. It's essential for investors and traders to gauge the value of a bond in the marketplace. Bond quotes are typically provided as a percentage of the bond's face value, the amount the bond will be worth at maturity. Understanding bond quotes helps investors compare different bonds and decide which bonds to buy or sell.
Key Takeaways
- A bond quote supplies the price and other details of a bond.
- Bond quotes are expressed as a percentage of par or face value and converted to a point scale.
- The par value is traditionally set at 100, representing 100% of a bond's $1,000 face value.
- Bond quotes may also be expressed as fractions.
For instance, the bond's face value, also known as its par value, is generally set at 100, representing 100% of a bond's face value of $1,000. When a bond quote is given as 102, the bond is trading at 102% of its face value, or $1,020. Conversely, a bond quote of 98 denotes the bond is trading at 98% of its face value, or $980.
Such fluctuations in bond prices can occur because of various factors, including changes in interest rates, the bond's credit rating, or broader market conditions. By examining bond quotes, investors can confirm the current market value of a bond, which in turn helps to make a more informed decision whether to buy, hold, or sell.
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How To Read a Bond Quote
Reading a bond quote may initially seem complex, but it's straightforward with a little guidance. Let's start with an example:
“VZ40 - 101.25 - 3.892%, 06/30/28, 5%, AA”
Now, let's take each part in order:
Ticker
VZ40: This is the bond's unique ticker symbol used to identify it.
Price
101.25: The price in a quote is usually listed as a percentage of its face value (typically $1,000 but occasionally $100, as here). This is converted to a numeric value and multiplied by 10 to determine the cost per bond. Bond quotes can also be expressed as fractions. The number 101.25, means the bond is trading at 101.25% of its $100 face value. So, the actual dollar price is $101.25.
Yield
3.892%: The yield is the annual return on the bond, expressed as a percentage. The most common yield metric used is yield to maturity, which estimates the bond’s total return if held to maturity, assuming all coupon and principal payments are made as scheduled. Sometimes, a “+” or “-” will be included in the yield, indicating it is slightly above or below the stated yield.
Maturity Date
06/30/28: The maturity date is when the bond will be repaid in full. Knowing the maturity date is crucial for assessing the bond's life span and the duration of the investment. This bond matures, and the principal is due June 30, 2028.
Coupon
5%: The coupon rate is the annual interest rate paid on the bond. It is fixed and determined at the time the bond is issued. This bond pays interest, or a coupon, of 5% of its face value annually.
Credit Rating
AA: The bond has a credit rating of AA, meaning it has a high credit quality but slightly higher risk than AAA bonds. Bonds are rated by credit rating agencies like Moody's, S&P, and Fitch. The credit rating reflects the bond issuer's creditworthiness and the likelihood of default. A higher rating (e.g., AAA or AA) indicates a lower risk, while a lower rating (e.g., BB or C) suggests a higher risk. In the US, bonds are categorized into one of three groups:
- Government or Treasury bonds: The highest-rated, safest forms of debt, which is from the federal government and its affiliated agencies, including Treasury bills and bonds.
- Investment grade corporate or municipal bonds: Bonds issued by companies, states, and cities deemed safe; both this and the first group are classified as investment grade.
- High-yield or junk bonds: The third group is for riskier bonds offered by companies, states, and cities, commonly referred to as junk bonds, which have fallen below investment grade.
Taking the above information together, the sample bond quoted is trading above its face value at $101.25, has a yield of 3.892% based on the market price, matures halfway through the year 2028, pays a 5% annual coupon, and has a strong credit rating. An investor purchasing this bond at $101.25 can expect a yield of 3.892% each year until it matures.
Additional Information in Bond Quotes
The following details may also be found in bond quotes:
- Bid and ask prices: The bid price is the highest price a buyer is willing to pay for the bond, while the ask (offer) price is the lowest price a seller is willing to accept to sell it. Some bond quotes report only the last price, as above, while others list the bid and ask.
- CUSIP number: Each bond is assigned a unique Committee on Uniform Securities Identification Procedures (CUSIP) number, which helps track and trade the bond.
Bond quotes can be obtained from various sources, including financial news outlets, brokerage firms, or financial advisors. Online platforms and financial data services also provide updated bond quotes.
Types of Bond Quotes
Face Value Quotes
Bonds are quoted as a percentage of their $1,000 or $100 face value. For example, a quote of 95 means the bond is trading at 95% of its initial face value.
Face value quotes allow you to easily calculate the bond's dollar price by multiplying the quote by the face value. This is the most common method for quoting U.S. Treasury bonds.
Yield Quotes
Bonds are quoted by their annual yield to maturity based on their current market price. For example, 5.25% yield.
Yield quotations allow easier comparison of bonds based on their yields rather than dollar prices. Corporate and municipal bonds are typically quoted by yield.
Many bonds, especially corporate and municipal bonds, are quoted electronically on platforms like the Municipal Securities Rulemaking Board's Electronic Municipal Market Access System or the Financial Industry Regulatory Authority's TRACE system. Some bonds, such as certain corporate bonds, are traded over the counter, and these may not be as easily accessible for quotes as exchange-traded bonds.
Spread Quotes
Bonds may be quoted based on the yield spread over a benchmark security like U.S. Treasurys, e.g., +175 basis points over Treasurys.
Spreads provide an easier comparison of non-Treasury securities with the risk-free government bond yield rates.
Pure Price Quotes
Some bonds are simply quoted as a dollar price, without reference to face value, e.g., $1,254. Pure price quotes are useful for bonds that don't have a standard $1,000 face value, like some mortgage-backed and asset-backed securities.
The different quote types serve alternate purposes, allowing comparisons based on face value, yields, spreads, or dollar prices. They provide alternate ways to assess the value of a bond.
What Is a Bond?
A bond is a debt security, like an IOU. When you purchase a bond, you are lending money to the issuer in exchange for periodic interest payments and the return of the bond's face value when it matures.
What Is the Difference Between the Bid and the Ask Price?
A bid price is the most a buyer will pay. An ask price is the least the seller will accept for the stock. The difference is known as the “spread.”
Bonds with high levels of liquidity, such as Treasurys, generally have spreads of a few pennies between the bid and the ask price in a full quote. The spreads on corporate bonds with lower levels of liquidity can exceed $1. A full quote on an illiquid corporate bond could list a last trade of $98, with a bid of $97 and an ask price of $99.
How Do Changes in Interest Rates Affect Bond Quotes?
Changes in interest rates have an inverse relationship with bond prices. When interest rates rise, bond prices typically fall, and vice versa. These changes are reflected in bond quotes, with the quoted price decreasing or increasing in response to interest rate moves.
What Is the Significance of a Bond Being Quoted at a Premium vs. a Discount?
A bond quoted at a premium is trading above its face value. For example, it could have a higher coupon rate than current market rates. Conversely, a bond quoted at a discount is trading below its face value, perhaps because it has lower coupon rates or the issuer's credit quality has fallen.
Are All Bonds Quoted in the Same Way?
No, bond quotes can differ across various types of bonds like corporate, treasury, and municipal bonds because of their different features and market behavior. For instance, Treasury bonds are typically quoted in terms of yield only, while corporate and municipal bonds may be quoted by either price or yield.
The Bottom Line
A bond quote contains the vital information bond traders and investors need to evaluate and compare different bonds. Investors can make more informed decisions by understanding how to read and interpret bond quotes.
