When reading the prices of bonds, you may notice that prices are listed differently than other investment instruments. Instead of being listed in dollar terms, bonds are listed in percentages of the original price at issue. If a bond is listed as 100, it is currently 100% of its value at issue. Any listing above or below 100 reflects that value in percentage terms. Bonds are usually issued at $1,000 par value. A bond issued at $1,000 value with a current price of “97” would cost $970. A bond priced at 108 would be $1,080. This pricing is expressed with two additional decimal places to complete larger numbers.
Bonds are not priced like shares in currency terms. The par value is set to one hundred, and stays if the price and the par value are the same. The price does not move in whole numbers, but in fractions equivalent to 1/32 or 1/8 of the currency listed. Bonds have both ask sales price, and bid purchase price. The difference between a bid and an ask price is known as the spread.
Bonds are sometimes expressed differently, in terms of their spread measured against a specific baseline. All quotes of price will be relative to this standard, which can be another bond. In this case, each full percentage point higher becomes +100. Each full percentage point under becomes -100. If a bond is 8% and the benchmark bond is 6%, then the spread is +200. If the bond is 5.5% and the benchmark is 8%, then the spread is -250.
Bond prices are different in the primary bond market and secondary bond market. In the secondary market this price is not constant and subject to day to day trading changes. Bonds can be acquired and sold for this price. If this price is above the par value, the bond sells at a premium. If this price is below the par value, the bond sells at a discount.
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