What is a Bond Quote?

The bond price refers to the price at the time the bond was issued. Theoretically, the face value of a bond is its price. However, in fact, due to various considerations of the issuer or changes in supply and demand relations and interest rates in the capital market, the market price of bonds often deviates from its face value, sometimes higher than face value, and sometimes lower than face value. In other words, the face value of a bond is fixed, but its price often changes. The issuer's interest repayment is based on the face value of the bond, not its price. Bond prices are mainly divided into issue prices and transaction prices.

Bond price

The formula for calculating bond investment yield R = [M (1 + r × N) P] / (P × n)

The formula for calculating bond price P is P = M (1 + r × N) / (1 + R × n)

among them

Where M and N are constants. Then the main factors affecting bond prices are the maturity period, the coupon rate, and the yield on transfer.

1. Pending period. The shorter the maturity period of a bond, the closer the bond's price is to its final value (conversion price) M (1 + rN), so the longer the maturity period of a bond, the lower its price. In addition, the longer the maturity period, the greater the various risks that the debt-issuing company will suffer, so the lower the price of bonds.

2. Coupon rate. The coupon rate of a bond is also the nominal interest rate of the bond. The higher the nominal interest rate of the bond, the greater the maturity yield, so the higher the selling price of the bond.

3. Investors' profit expectations. The profit expectation (investment yield R) of bond investors changes with the market interest rate. If the market interest rate is high, the investor's profit expectation R will also rise, and the price of the bond will fall; if the market interest rate is reduced, , The price of the bond will rise. This is most evident when bonds are issued.

Generally, there is a gap between the completion of printing and the issue of bonds. If the market interest rate changes at this time, the nominal interest rate of the bond will differ from the actual market interest rate. At this time, it is no longer necessary to readjust the printed coupon interest. Possibly, in order to make the interest rate of the bond consistent with the prevailing market interest rate, the bond can only be issued at a premium or discount.

4. The creditworthiness of the enterprise. The higher the creditworthiness of the debt issuer, the lower the risk of the bond, and therefore the higher the price; and the lower the creditworthiness, the lower the bond price. Therefore, in the bond market, for other bonds with the same conditions, the price of government bonds is generally higher than financial bonds, and the price of financial bonds is generally higher than corporate bonds.

5. Supply and demand. The market price of bonds also depends on the relationship between capital and bond supply. When economic development is on the rise, companies generally increase equipment investment, so it throws out bonds because of urgent need of funds, on the other hand it will borrow from financial institutions or issue corporate bonds, which will tighten market capital The increase in the supply of bonds has caused bond prices to fall. When the economy is in a downturn, the demand for capital from manufacturing companies will decrease, and financial institutions will have surplus funds due to reduced loans, which will increase investment in bonds and cause bond prices to rise. And when the central bank, the financial department, and the foreign exchange management department conduct macroeconomic regulation and control on the economy, they often cause changes in the supply of market capital, which generally reflect changes in interest rates and exchange rates, which cause bond prices to rise or fall.

6. Price fluctuations. When the price rise is brisk or the inflation rate is high, people generally invest funds in real estate, gold, foreign exchange and other fields that can maintain their value for reasons of preserving the value, resulting in a shortage of funds and a decline in bond prices. .

7. Political factors. Politics is a concentrated reflection of the economy and has an adverse effect on economic development. When people think that changes in political forms will affect economic development, for example, when the government changes, the country's economic policies and plans will change greatly, which will prompt bondholders to make buying and selling policies.

8. Speculative factors. In bond trading, people always find ways to earn spreads, and some relatively powerful institutions will use the funds or bonds in their hands for technical operations, such as raising or suppressing bond prices and causing bond price changes.