Know these before you buy your first bond

For a bond investor seeing the bond market movement is critical to a successful investment. Most information about the bond market is available online at (EMMA.msrb.org and FINRA.org/marketdata).

Treasury market as the primary indicator

US Treasury market is the primary influencer of the entire worldwide bond market. Your first source of information about market direction will be seen in the Treasury market.

The recently issued 10-yr bond in the treasury market is the most traded bond in the market and is called a bellwether bond. Treasury bonds are usually deemed not risky and have the lowest yield. Every other bond will have a higher yield because they are riskier than the treasury bond.

The difference in yield between any other bond and a treasury bond is called as yield. When writing this post following is the treasury yield rates (Source: Treasury Gov)

Reading bond prices with ticks

Bonds are quoted at par plus fractions in 32nd of a point (also called a tick). A point is usually the 100th of the par value.

For example, a point for a $100 par is $1 and for $1,000 it’s $10.

1 / 32 of a point of bond with a par value of $100 is (1/32) * 100 which is calculated to be 3.125.

When a bond price is quoted as 99.14 what it means is that its 99% of the par value and 14 / 32 of a point.

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