Treasury Bond Quotes

Treasury Bond Quotes

Treasury bonds are issued by and backed by the US government. Their maturities range from 10 to 30 years, they are sold at their par value (usually $1,000), and they bear a fixed interest, or coupon, rate stated as a percentage of par. When resold in the secondary market, the price of a Treasury bond is quoted as a percentage of its face value. This quoted price is made up of a number of components, including the fixed interest rate stated on the bond, current interest rates at the time of sale, the time remaining until maturity, and the call date (if applicable).

Selling T-bonds on the secondary market

Once these components are factored in, the bond is priced to make it competitive with other similar bond issues. As a result, it may sell in the secondary market for more than its par value (a premium) or less (a discount). Either way, its price will be quoted in 32nds.

Here’s an example

For example, let’s assume a Treasury bond was originally issued with a par value of $1,000 and a 5 percent coupon rate. The original buyer then sells it in the secondary market. However, at the time of sale, new bonds are being issued at 7 percent. In order to get someone to buy this bond, the seller will have to discount its price so that the buyer can earn a yield equivalent to 7 percent. Remember, too, that the time until maturity is also a factor.

After allowing for these variables, let’s further assume that the price is shown as 82.4. This means that it is priced at $821.25. We know this because the "82" represents 82 points, and each point is worth $10. So, 82 x $10 = $820. The "4" represents 4/32nds of a point ($10), or $1.25. Add them together and you get $821.25.

Remembering this simple formula will help you decode the Treasury bond quotations you see in the newspapers.