What Is a Bond Quote?
A bond quote is the general price at which a bond traded, expressed as a percentage of par value and remodeled to some extent scale. Par value is typically set at 100, representing 100% of a bond’s face value of $1,000. As an example, if an organization bond is quoted at 99, that implies it is purchasing and promoting at 99% of face value. In this case, the price to buy each bond is $990.
Key Takeaways
- A bond quote refers to the ultimate price at which a bond traded.
- Bond quotes are expressed as a percentage of par (face value) and remodeled to some extent scale.
- The par value is traditionally set at 100, which represents 100% of a bond’s $1,000 face value.
- Bond quotes will also be expressed as fractions.
How a Bond Quote Works
Price quotes for bonds are represented by way of a percentage of the bond’s par value, which is remodeled to a numeric value, then multiplied by way of 10, in order to get to the bottom of the price consistent with bond. Bond quotes will also be expressed as fractions.
As an example, corporate bonds are quoted in 1/8 increments, while govt bills, notes, and bonds are quoted in increments of 1/32. Therefore, a bond quote of 99 1/4 represents 99.25% of par. Converting the percentage to 99.25 and multiplying by way of 10 leads to a cost of $992.5 consistent with bond. At the side of being quoted as a percentage of par value, bonds will also be quoted with a yield to maturity (YTM).
The bond price and quote the calculation is fairly simple, compared to other kinds of investments.
Varieties of Bond Quotes
At the side of the general price at which a trade took place, entire bond quotes include bid and ask prices, which will also be calculated within the equivalent approach for the reason that quote on the ultimate trade. The bid is the perfect price level buyers are ready to pay for the bond at the time of the quote. For bond sellers on the lookout for speedy trade executions, the bid is the in all probability price for the trade. The ask is the ground price level on bonds to be presented at the time of the quote.
The difference between the bid and the ask price is known as the “spread.” In a whole quote, bonds with top levels of liquidity, similar to Treasuries, typically have spreads of a few pennies between the bid and the ask price. On the other hand, the spreads on corporate bonds with lower levels of liquidity can exceed $1. As an example, a whole quote on an illiquid corporate bond might simply file a last trade of $98, with a bid of $97 and an ask price of $99.
Bonds will also be quoted in terms of their yields to maturity, which is often completed for reference purposes, fairly than trade execution. As an example, the financial media ceaselessly quotes the 10-year Treasury follow by way of its YTM, to give consumers a reference stage for bond price fluctuations.
