How to Read a Bond
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Figures often look confusing, but if you want to protect your investments and ensure that you are getting what is due on your bonds, then it is about time you learn how to read a bond. The best way to learn it is to make observations and make your self familiar with what bond prices look like. This you can do if you look at local media such as the newspapers. Observe also how the bonds fluctuate. When you read the bond market table, there are usually five columns to look at.
Step 1
Read the “issuer” column of the bond market table - The first column tells you who the ISSUER of the bond is. The issuer of the bond can either be a business entity or corporation, country, state, or the national government itself.
Step 2
Read the “coupon” column of the bond market table - The second column tells you of the COUPON value or the RATE. The coupon represents the interest rate which the issuer pays and the interest rate is usually fixed.
Step 3
Read the “maturity date” column of the bond market table - The third column tells you the MATURITY DATE which is the date on which the bond matures or falls due and it is also the date when the issuer is suppose to pay you back. The maturity date is often reflected in the market table as the last two digits of the year such as ‘08’ for the year 2008.
Step 4
Read the “bid price” column of the bond market table - The third column tells you the BID PRICE which refers to the price which one wants to pay for the bond as expressed in percentage of its par value. If a bond is listed at 150, it means that the bond is being traded at 150 percent of its value. In general, the par value of bond is at $1000 for every bond. For you to read the bid price easily, simply move the decimal point one decimal place to the right. Such that, a bond listed at 150 has a bid price of $1050.
Step 5
Read the “yield” column - The YIELD, which is the shorter term for YIELD TO MATURITY (YTM) indicates the annual return up to the time of maturity of the bond. The yield to maturity indicates the annual return until the bond matures.
Aside from these, learn the other terminologies and columns. There are different terminologies that you should be familiar such as callable bond “c21” which means that the bond can be called by 2021. Likewise, be familiar with other unusual columns. Some of these columns are the “high” column which indicates the highest amount that the bond was sold, the “low” which indicates the lowest amount that the bond was sold, the “last” column which indicates the most recent amount that the bond is sold. There is also a “percent change” column which indicates the difference between the current price and the price at which the bond was sold.
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