How to Understand Bond Quotes

by Mike Parker

Many different types of investments are suitable for investors, but most fall into one of two primary categories: equity investments, such as stocks, and debt investments, such as bonds. Price tables for many listed stocks and bonds are reported daily in major newspapers and financial publications. The ways in which stocks and bonds are quoted differ significantly. Understanding bond quotes may help you to make more informed investment decisions.

Determine the type of bond you are interested in researching. There are three basic types of bonds that may be reported in financial publications: government bonds, municipal bonds and corporate bonds. Government bonds are debt instruments issued by agencies of the federal government and are considered among the safest of all investments because they are backed by the full faith and credit of the U.S. government. Municipal bonds are among those most favored by individual investors, in part because the interest on many municipal bonds is exempt from federal income taxes, according to the Securities Industry and Financial Markets Association. Corporate bonds pay the highest interest rates, but may also involve the greatest risk.

Locate the bond tables in your publication of choice and turn to the government bond section. Different publications may utilize different bond table formats, but most will report the government bond's rate, maturity, bid price, ask price and ask yield. Some may also include the most recent price change. The rate refers to the bond's stated percent interest rate bond upon issue. The maturity, stated in month and year, refers to the date the bond matures and ceases to pay interest. The bid price is the percent amount last offered to purchase this bond. The ask price is the percent amount last offered to sell this bond. The ask yield is the actual interest rate the bond would yield if you purchased the bond in the secondary market at the ask price.

Turn to the municipal bond section. The information reported there will usually include the bond's issue, coupon, maturity, price and yield to maturity. The issue refers to the specific bond and will typically include the name of the municipality that issued the bond. The coupon refers to the bond's stated percent interest rate upon issue. The maturity, stated in month, day and year, refers to the date the bond matures and ceases to pay interest. The price is stated as a percent of the bond's face value. The yield to maturity is the annualized rate of return at the current market price if you hold the bond until it matures.

Turn to the corporate bond section. The corporate bond listing will typically include bonds, current yield, volume, closing price and net change. The bonds listing will include the name of the corporation that issued the bond, the bond's stated percent interest rate and its maturity year. The current yield is the percent interest yield the bond will produce at its current market price. The volume indicates the number of bonds traded on the previous day. The close is the price of the bond at the end of the previous day, stated as a percentage of the bond's face value. The net change reports the percentage increase or decrease of the closing price when compared to the previous day's closing price.

Tip

  • Bond prices in the secondary market tend to move in the opposite direction of prevailing interest rates.

Warning

  • Bond investments involve a certain level of risk. Even government bonds can fluctuate in value in the secondary market, though they will pay full face value if held to maturity.

Items you will need

  • Financial publication that reports bond prices

About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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