Below Par

AAA

DEFINITION of 'Below Par'

A term describing a bond whose price is below the face value or principal value, usually $1,000. As bond prices are quoted as a percentage of face value, a price below par would typically be anything less than 100.

INVESTOPEDIA EXPLAINS 'Below Par'

A bond trading below par is the same as a bond trading at a discount. When a bond trades below par, its current yield is higher than its fixed coupon rate.

Bonds may trade below par when interest rates have risen since it was issued, its credit rating has declined, there are concerns about a default, or there is an excess supply. A bond's discount may narrow as it approaches maturity or its first call date, when investors will receive par value.

RELATED TERMS
  1. Bond Rating

    A grade given to bonds that indicates their credit quality. Private ...
  2. Call Date

    The date on which a bond can be redeemed before maturity. If ...
  3. Par

    1. The face value of a bond. Generally $1,000 for corporate issues, ...
  4. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  5. Face Value

    The nominal value or dollar value of a security stated by the ...
  6. Bond Discount

    The amount by which the market price of a bond is lower than ...
RELATED FAQS
  1. Other than my savings account, what other types of holdings compound my interest?

    Investors and savers can use the power of compounding interest to accumulate wealth over time. Unlike simple interest that ... Read Full Answer >>
  2. What is the difference between a term and open repurchase agreement?

    The major difference between a term and an open repurchase agreement (repo) is in the term or tenor. In a term repo, the ... Read Full Answer >>
  3. Which asset classes are the most risky?

    Equities is the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the ... Read Full Answer >>
  4. How is the interest rate on a treasury bond determined?

    The yield of U.S. Treasury securities, including Treasury bonds (T-bonds), depends on three factors: the face value of the ... Read Full Answer >>
  5. Is a treasury bond a good investment for retirement?

    Individuals saving toward retirement use a variety of investments to accumulate funds over time, including stocks, bonds ... Read Full Answer >>
  6. Is there an index for tracking mid-cap stocks?

    There are several indexes for tracking mid-cap stocks. The most widely referenced is the S&P Mid-Cap 400, but others ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Bond Call Features: Don't Get Caught Off Guard

    Learn why early redemption occurs and how to avoid potential losses.
  2. Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  3. Bonds & Fixed Income

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  4. Bonds & Fixed Income

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  5. Forex Education

    How To Compare Yields On Different Bonds

    Find out how to equalize and compare fixed-income investments with different yield conventions.
  6. Investing

    Three Portfolio Moves To Consider Now

    What portfolio moves should you consider making as the 2nd quarter kicks off? Before we focus on the future, let’s first reflect on the 1st Q surprises.
  7. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  8. Mutual Funds & ETFs

    Pros and Cons: Preferred Stock ETFs vs. Bond ETFs

    A look at the differences between preferred stock ETFs and bond ETFs and when you should invest in one over the other.
  9. Bonds & Fixed Income

    African Sovereign Debt: Risks and Rewards

    African sovereign debt offers high yields and upside — if one has the stomach for the risk.
  10. Investing Basics

    Understanding Redemption

    In the investing world, redemption refers to cashing out the value of bonds or mutual funds.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center