Where to Look
If you’re interested in buying or selling bonds, it’s a good idea to start out by comparing the prices of similar securities. Just as you would with any important purchase, such as a home or a car, checking out the current prices of comparable bonds gives you a strong indicator of what your bond will cost to buy, or what you can expect to receive if you are selling a security.
An easy place to check bond prices is in your morning newspaper, or in the financial media, such as The Wall Street Journal, Investor’s Business Daily or Barron’s. Those papers have extensive tables showing representative bond prices in recent trades. You should recognize that the prices listed in the papers are snapshots; bond prices do fluctuate during the day so the price you’re actually quoted may vary based on more current trading activity. The Internet has also become a rich source of information, with many sites providing investor information about bonds. In addition, with the growth of business news channels, such as CNBC, investors can check on benchmark Treasury bond prices during the day and stay apprised of the economic releases that tend to affect yields.
How to Read Bond Market Tables
If you’re more accustomed to reading stock exchange listings, the bond price tables in the newspapers look somewhat different and, initially, hard to understand. But once you become familiar with a few terms, the tables are understandable and provide information you need to make informed investment decisions.
In the stock tables, you can look up a specific company and see its high and low prices for the day before. That’s because there are far fewer stocks listed on the three major exchanges, approximately 9,000, than the number of bond issues outstanding at any given time. In addition, the stocks of most firms tend to trade frequently, making it relatively easy to determine what a given stock’s recent market price is.
But with more than 1.5 million individual bonds in the municipal market alone, 167 times the number of stocks listed on the major exchanges, it wouldn’t be possible for newspapers to list every bond outstanding in the combined debt markets. Just the municipal market alone would take up close to 100 pages. And, despite the market’s liquidity (the ability to buy or sell a security quickly), most retail bondholders purchase their securities with the intent to receive regular interest and hold them until they mature, reducing the potential amount of daily trading activity.
Fortunately, with so many bonds outstanding, listing daily prices for all of them is neither necessary nor useful. Since only a small fraction of the outstanding bonds trade in any given day, listing representative prices provide investors with sufficient benchmark information to gauge what a fair price would be for the security they are considering. That’s because similar bonds tend to move up or down in tandem with interest rates, a key factor affecting the multitude of fixed-income securities. The bond’s credit quality, as reflected in its rating from one of the major rating agencies, is another factor that can affect its price. (Individual stock prices are more directly determined by earnings projection for the specific company. Thus, the stock price for one retailer may rise during the quarter, while another’s may fall.)
By the Numbers
The tables shown in the general and business media, while varying in format, provide the basic information you need to compare prices for similar treasury, municipal, corporate and mortgage bonds. When considering bonds as investments, there are several pieces of information you need to know: The bond’s coupon rate—or what it will pay in interest; how long before the principal amount of the bond matures, or if there is a call date; its recent price and current yield. Essentially, all the tables give that same basic information. The Treasury table (Government agency tables are similar) would be listed in the paper as shown below:
Rate Maturity Bid Ask Chg Ask/yld
7 3/4 Feb. 01 105:12 105:14 5.50
5 3/8 Feb. 01 99:26 99:27 5.44
In the first row, the security is paying its bondholders 7 3/4% interest and is due to mature Feb, 2001. Prices in the bid and ask columns are percentages of the bond’s face value of $1,000. So, a bid of 105:12 means that a buyer was willing to pay $1053.75, compared to the seller’s lowest asking price, 105:14, or $1054.38, a difference of 63 cents per thousand. (The numbers after the colons represent 32nds, so 12/32nds, for example, would equal $3.75, which is appended to the 105 before the colon.) By looking at the bid and ask prices, you can see that an investor who bought the bond at par when it was first issued can make a profit of more than 5% if it were sold now.
The reason for the profit can be explained by the rate column. The security pays higher interest than a newly-issued three-year Treasury would, so is more attractive to an investor. But because the investor would pay a premium to purchase the existing note, the yield to maturity falls to 5.50%.
In the next row, the bond pays a lower rate, 5 3/8%. Its price was unchanged the day before, closing at 99:27, or $998.44, indicating an investor buying that security would be able to acquire it at a discount from its par value of $1,000. Because the investor is buying the bond below its par value, the yield to maturity, 5.44%, exceeds the coupon rate.
The Tax Exempt Bond Market
The tax-exempt bond market is the most popular sector for individuals investors interested in the bond market. About 30% of all outstanding municipal bonds are held by individuals. For that reason, it is particularly important that investors have an understanding of how to read price information, as below.
Issue Coupon Maturity Price Yield to Maturity
Nevada GO Bds 5.00 5-15-28 97 1/8 5.19
Nebraska Public Power District 5.00 1-1-28 97 5.20
Looking at those two examples, a buyer would know that a 20-year municipal bond paying 5% interest would cost about $970. In this case, the slight price variances may be attributable to different credit ratings and other factors.
In the first row, the State of Nevada general obligation bonds are offering a coupon rate of 5% with a maturity in May of 2028. The most recent price of this bond, shown as a percent of its face value, was $971.25, $28.75 less than its initial offering value per $1,000. In other words, if the buyer’s bid was accepted, he would pay less than the current bond holder did when the bond was first issued, because prevailing interest rates are now higher than 5% on similar tax-exempt bonds. Because of the discount, the buyer would be earning a yield to maturity of 5.19%, more than the stated interest rate, because he bought the bond at less than its face value.
The second issue, offered by the Nebraska Public Power District, has the same coupon, or interest rate, 5% and matures in January of the same year, 2028. Just as in the Nevada example, the seller would be receiving less than what he paid for the bond when it was originally issued, $970 per $1,000, a 3% loss. The lower price, consequently raises the yield to maturity for the buyer to 5.20%.
The Association and Bloomberg News LLP. also provide a yield table for AAA-rated insured revenue bonds, a useful benchmark for prices of other municipal issues. In addition, the Association and Standard & Poor’s also sponsor a phone service which provides subscribers with current prices of up to 25 securities for $9.95. Call 1-800-Bond Info for details.
Corporate Exchange Traded Bonds
As with the Treasury and Municipal market bond listings described above, corporate bond listings also show the coupon, or interest, rate; maturity date, and last price. However, because corporate bonds are more actively held by large institutional investors, the listing table shows the current yield and includes the volume traded. Corporate bond listings would look like those below:
Bonds Cur. Yld. Vol Close Net Chg.
BosCelts 6s38 9.22 265 3/8 + 1/4
PacBell 6 5/8 34 6.7 599 1/8 – 1/8
The companies issuing the bonds are listed in the first column, in this case, the professional basketball team, The Boston Celtics, and the telecommunications company, Pacific Bell. Immediately after the names, comes the interest rate paid by the bond as a percentage of its par value. The Celtic’s bond pays 6%; PacBell’s pay somewhat more, 6 5/8%. (The small “s” in the Celtic’s listing simply separates the interest rate from the year the bond matures, 2038). The PacBell bond matures in 2034.
The basketball team’s bond has a current yield of 9.2% based on its closing price of $653.75 per $1,000. The volume traded on the exchange the day before amounted to $22,000 and the price rose $2.50. Similarly, the phone company had a volume of $5,000 and closed nearer its par value, $991.25, down $1.25 for the day.
As most investment advisors will tell you, some portion of your portfolio should be in bonds. Investing in bonds generally provide a high degree of safety with regular, predictable, scheduled payments over the life of the security. Now that you understand how to read the bond tables in the newspaper and in other media, you’ll have a strong base to begin discussing your bond investment needs with your broker.