Bond Quote

A bond quote refers to the bond's price agreed by buyer and seller during a determined timeframe, generally at the time of trading. The value is presented on a scale of 0 to 100, representing a percentage of $1,000 or $100, the usual face value for a single bond.

The quote reflects the most recent price or market price at the time of trading. When the quoted price is composed of accrued interest, the price is known as the dirty price. Conversely, a bond's clean quote or a clean price indicates that the price is independent of accrued interest.

• The bond quote represents the value of the bond at the time of trading, usually in terms of percentage of face value or yield.
• If the bond having a face value of $1000 is quoted at $99, the bond trades at 99%of face value, that is $990.
• Reading the bond quotation makes it easy to obtain more information about the investment instrument than just the current price. It may, for example, include its bid price, ask price, yield, maturity, coupon rate, and spread.

Bond quotes are usually represented as a percentage of the face value or in terms of yield. Bond prices are sensitive to various factors like credit rating, market interest rates, and supply and demand forces. Quotes reflecting the market value reveal whether they are trading at a premium or discount.

Percentage of Par value: Generally, bonds have prices based on their par value, also known as face value. It is, essentially, the value of the bond stated at the time of its issuance, which is often issued at $1000 per one unit of the bond or $100 in a few cases. So, if the financial instrument's face value is $1000 and currently selling at a quote of 90 indicates that it is trading at 90% of its face value, that is $900. Consider another example:

• The price is quoted as 95.50.
• The bond's face value is $1000.
• It is selling at 955.

It means that the bond is trading at 95.5% of its face value.

Fractions: Sometimes, bond price takes the form of fractions. Usually, corporate bonds are represented as increments of 1/8 and government bonds in increments of 1/32. Thus, in the previous example, it is correct to define the value as 95.5 or 95 16/32. A value such as 97.75, for instance, would be described as 97 6/8 or 97 24/32. 

Yield: The yield value is informative about the actual profit resulting from the investment. It indicates the potential income or the rate of return derived from holding the bond until maturity. Yield and bond prices are inversely related. When the market interest rate increases, yield increases, and bond price decreases, and vice versa. Using yield terms like yield to maturity (YTM) makes the comparison of different bonds less complex.

By reading a bond quote, it is easy to discover more information other than the current price. For example, it may include its bid price, ask price, yield, maturity, and spread. However, amateur investors may feel perplexed while reading it because of their presentation.

#1 - Bid & Ask Prices

The "bid" and "ask" prices are elementary concepts when looking for a bond in a secondary market. Bid prices are the highest price that investors are willing to pay for the investment during a trading day, while ask prices are the price at which the seller is ready to trade the bond.

#2 - Spread

The difference between the bid and ask prices is known as the bid-ask spread. It is usually insignificant, particularly for liquid assets, but the value will be high if a bond is illiquid.

#3 - Coupon Rate

The coupon rate represents the interest rate stated at the time of bond issuance. The issuer is liable to pay the interest to the bondholder until maturity. The fixed interest payment occurs in regular intervals like annually or semiannually until maturity.

#4 - Maturity

Maturity itself is another essential piece of information. It represents the date at which the bondholder will receive the principal amount.

For better understanding, the concept, consider the following example and assume data pertains to U.S. Treasury Quotes.

The first column contains the bond's maturity date, indicating which investors get the principal amount. The next column shows the coupon rate, the fixed interest rate stated at the time of bond issue, and based on which the interest payment occurs in regular intervals. It is followed by columns for bid price and ask price. Figures under Chg head represent the difference between the current price and the previous day's price. Finally, the last column denotes the asked yield indicating the yield on the security or the yearly percentage return that the buyer will earn if the bond is acquired at the "ask price" on the day of the quotation and owned until maturity.

This has been a guide to what is Bond Quote and its Definition. Here we discuss how to read a bond quote along with practical examples and detailed explanations. You can learn more about financing from the following articles –

• Premium Bonds
• Performance Bonds
• Fidelity Bonds