Bond quotes may differ in format, but they all contain essentially the same information: the bond issuer, the coupon rate, the maturity date, the yield and the current price. Understand how to interpret each of these pieces of information, and you'll be able to read a bond quote without much trouble.

## Issuer, Coupon and Maturity

A typical quote on a bond from the hypothetical XYZ Corp. would start with something like this: "XYZ 5.125% March 2022." XYZ, obviously, is the issuer. That's who received the money by initially selling the bond, and that's who pays the interest on the bond and will pay the face value when the bond matures. The "5.125%" is the coupon rate. That's the rate of annual interest that XYZ pays on the bond, and it's based on the bond's face value, also called par value. If you bought one of these bonds with a face value of $1,000, then you'd get paid 5.125 percent in cash interest -- $51.25 -- every year. Finally, "March 2022" is the maturity date. (Years are sometimes listed with only two digits, such as "Mar22.") In March 2022, XYZ will pay the bondholder the face value of the bond. In your case, that would be $1,000. Regardless of what you actually paid for the bond, you'd get $1,000 at maturity.

## Yield

Investors rarely pay par value for bonds, so the coupon rate doesn't reflect the rate of interest they earn on the money they actually invest. Bonds have to stay competitive with other investments, which may be offering higher or lower rates of return. After all, few investors would want to buy a bond at 5 percent when a different investment of similar risk is paying 6 percent. For that reason, bond prices fluctuate, which in turn affects the "yield," or the effective interest rate. Say you pay par value for a $1,000 bond with a coupon rate of 5 percent. You get $50 a year in interest, earning 5 percent on your money. Now, say you bought that same bond for $835. The coupon rate never changes, so the interest you receive is the same: $50. But $50 is 5.988 percent of $835. The current yield on that bond, then -- the actual return on your money -- is 5.988 percent.

## Price

The current price is simply the price that produces the yield listed for the bond. Bond prices are a little tricky, because they aren't expressed in dollars, the way stock quotes are. The easiest way to understand them is to think of them as a percentage of the face value. If a bond with a par value of $1,000 is selling for $835, the bond quote would list the price as "83.5" If it were selling for $1,010, the quoted price would be "101." If the bond had a face value of $2,000 and was quoted at a current price of 83.5, then you'd pay $1,670 for it.

Two pieces of bond language it helps to know: When the yield is higher than the coupon rate, the price will be lower than 100, and the bond is said to be selling at a "discount." When the yield is lower than the coupon rate, the price will be higher than 100, and the bond is said to be selling at a "premium."

## Fractions

You may see bond rates and prices quoted in fractions, a holdover from the days before trades were all handled by computer. In fractional systems, corporate bonds are expressed in terms of eighths of a point, so that a coupon rate of 5 1/8 percent would be equal to 5.125 percent, and a price of 101 1/8 would be equal to $1,011.25 for a bond with a par value of $1,000. In fractional systems, U.S. Treasuries are quoted in 32nds of a point.

#### References (3)

- Financial Industry Regulatory Authority: Reading a Corporate Bond Table
- Morgan Stanley Smith Barney: The Value of Bonds
- Financial Accounting for MBAs, Fourth Edition; Peter Easton, et al