What is a 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.
- A bond quote refers to the last price at which a bond traded.
- Bond quotes are expressed as a percentage of par (face value) and converted to a point scale.
- The par value is traditionally set at 100, which represents 100% of a bond's $1,000 face value of $1,000.
- Bond quotes may also be expressed as fractions.
Breaking Down Bond Quote
Price quotes for bonds are represented by a percentage of the bond's par value, which is converted to a numeric value, then multiplied by 10, in order to determine the cost per bond. Bond quotes can also be expressed as fractions. For example, corporate bonds are quoted in 1/8 increments, while government 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 10 results in a cost of $992.5 per bond. In addition to being quoted as a percentage of par value, bonds may also be quoted with a yield to maturity (YTM).
Full Bond Quotes
In addition to the last price at which a trade occurred, full bond quotes include bid and ask prices, which are calculated in the same manner as the quote on the last trade. The bid is the highest price level buyers are willing to pay for the bond at the time of the quote. For bond sellers seeking immediate trade executions, the bid is the likely price for the trade. The ask is the lowest price level on bonds to be sold at the time of the quote.
The difference between the bid and the ask price is known as the "spread". In a full quote, bonds with high levels of liquidity, such as Treasuries, generally 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. For example, 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.
Quotes Based on Yield
Bonds can also be quoted in terms of their yields to maturity (YTM), which is commonly done for reference purposes, rather than trade execution. For example, the financial media often quotes the 10-year Treasury note by its YTM, to give investors a reference point for bond price fluctuations.
[Important: Investors shouldn't feel intimidated bond pricing jargon, because the calculation is straightforward, compared to other types of investments.]