Bond Quote
A bond quote is the last price at which a bond traded, expressed as a percentage of par value and converted to a point scale. Par value is generally set at 100, representing 100% of a bond's face value of $1,000. For example, if a corporate bond is quoted at 99, that means it is trading at 99% of face value. In this case, the cost to buy each bond is $990.
Definition: Bond quotation refers to the last trading price of a bond in the market, usually expressed as a percentage of the bond's face value and in point increments. The face value is typically set at 100, representing 100% of a bond's face value of $1,000. For example, if a corporate bond is quoted at 99, it means it is trading at 99% of its face value. In this case, the cost to purchase each bond is $990.
Origin: The concept of bond quotation originated with the development of the bond market. Early bond trading was primarily conducted over-the-counter with simpler quotation methods. As financial markets evolved, bond quotations became standardized, serving as a crucial tool for investors to assess bond value.
Categories and Characteristics: Bond quotations can be categorized as follows:
- Par Quotation: When a bond is quoted at 100, it is trading at its face value.
- Premium Quotation: When a bond is quoted above 100, it is trading at a price higher than its face value.
- Discount Quotation: When a bond is quoted below 100, it is trading at a price lower than its face value.
Specific Cases:
- Case 1: A company issues bonds with a face value of $1,000, and the current market quotation is 105. This means investors need to pay $1,050 to purchase one bond. A premium quotation typically indicates high market demand for the company's bonds.
- Case 2: A government issues bonds with a face value of $1,000, and the current market quotation is 95. This means investors only need to pay $950 to purchase one bond. A discount quotation may reflect a lack of market confidence in the government's bonds.
Common Questions:
- Why do bond quotations fluctuate? Bond quotations are influenced by various factors, including market supply and demand, interest rate changes, and the issuer's credit status.
- How to interpret the point increments in bond quotations? Point increments usually represent the decimal part of the bond quotation, for example, 99.5 means the bond is trading at 99.5% of its face value.
