Corporate Bond Quotes

Corporate Bond Quotes

Corporate bonds, which are issued by private sector corporations, have maturities that range from 10 to 30 years. Of all debt issues, corporate bonds are the most speculative; however, their relative risks can vary considerably from one issuer to the next. Corporate bonds are sold at their par values (usually $1,000) and bear a fixed interest, or coupon, rate stated as a percentage of par. When resold in the secondary market, the price of a corporate 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, the issuer’s credit rating, current interest rates at the time of sale, and the time remaining until maturity.

Selling corporates on the secondary market

Once these components are factored in, the bond is priced to make it competitive with other issues. So, it may sell in the secondary market for more or less than its par. Either way, its price will be quoted in eighths. For example, let’s assume a corporate bond was originally issued with a par value of $1,000 and a 7 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 6 percent. Thus, this bond will be more attractive to buyers than other corporate bonds, so the seller can command a premium for its purchase. Remember, too, that the time until maturity is a factor.

After allowing for these variables, let’s further assume that the price is shown as 101 5/8. This means that it is priced at $1,016.25. We know this because the "101" represents 101 points, and each point is worth $10. So, 101 x $10 = $1,010. The "5/8" represents 5/8 of a point ($10), or $6.25. Add them together and you get $1,016.25.

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