How to Read Bond Prices

Bonds are debt securities typically issued in $1,000 denominations called par, or face value --- the contractual amount to be paid at maturity. Bonds pay fixed or variable interest to investors annually and can trade in the secondary market at more or less than the face value, at a premium or at a discount.

• 1

  Obtain the bond's price. Bond prices are expressed as a percentage of par. If the price is 100, it means 100 percent of the face value, or $1,000 per $1,000 of face value. If the price is 99, you pay 99 percent, or $990 for each $1,000 of face value. If the price is 104, you pay 104 percent, or $1,040 for each $1,000 of face value.

• 2

  Separate the bid from the ask. The bid is the price at which you can sell your bond to a dealer; the ask is the price at which you can buy a bond from the dealer. The difference between the two is the dealer's profit margin, so the ask is always higher than the bid. For example, a bid 104.649 means that you can sell your bond for $1,046.49 for each $1,000 of face value; an ask of 104.702 means you can buy the bond for $1,047.02 for each $1,000 of face value.

• 3

  Factor in accrued interest. Bonds pay interest semiannually but trade with accrued interest, meaning that if you buy a bond between interest payments, you get the full six-month payment but owe the seller the amount accrued up to the trade date. When you buy a bond, the accrued interest is added to the purchase price.

• 4

  Clarify if the markup --- the broker's charge per trade --- is included in the bond ask price. Some brokers factor it in when quoting the ask price; others add it to each trade separately.

• 5

  Calculate your total outlay. For example, let's say you have $5,000 to invest and decide to buy CITIGROUP INC SUB NT 5.00000 percent 09/15/2014, which is quoted at 104.702. The quote is for a Citigroup bond --- a subordinated note --- maturing on Sept. 15, 2014, with an annual interest payment of $50 for each $1,000 of face value. At 104.702, you can buy four bonds for a total of $4,188.08. The accrued interest comes to $82, and the markup is $15, so your total outlay is $4,285.08. You collect $200 in interest annually and get $4,000 back at maturity.