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Types of Bonds

Understanding Price and Yield Information

There is a tremendous amount of information available on prices and yields of Treasuries from a wide variety of sources. Local and national newspapers, cable TV stations, investment advisors and a multitude of websites offer in-depth background and up-to-the-minute data. Two useful websites to look for general information are the U.S. Treasury’s Bureau of the Public Debt and Investing in Bonds, this website from the Securities Industry and Financial Markets Association.

The price and yield of a U.S. Treasury security are linked. From the time a bond is originally issued until the day it matures or is called, its price in the marketplace will fluctuate depending on the particular terms of that bond as well as general market conditions, including prevailing interest rates, the bond’s credit and other factors. Because of these fluctuations, the value of a bond will likely be higher or lower than its original face value if you sell it before it matures. In general, when interest rates fall, prices of outstanding bonds with higher rates rise. The inverse also holds true: when interest rates rise, prices of outstanding bonds with lower rates fall to bring the yield of those bonds into line with higher-interest bearing new issues. Take for example, a $1,000 bond issued at eight percent. If during the term of that bond interest rates rise to nine percent, it is expected that the price of the bond will fall to about $888, so that its yield to maturity will be in line with the market yield of nine percent ($80 / $888 = 9.00%).

When interest rates fall, prices of outstanding bonds rise until the yield of older bonds match the lower interest rate on new issues. In this case, if interest rates fall to seven percent during the term of the bond, the bond price will rise to about $1,142 to match the market yield of seven percent ($80 / $1,142 = 7.00%).

As a first step, it’s helpful to learn how to read the prices and yields that are reported in daily newspapers. Below, please find an example of a typical news article on Treasury bond and note prices. The calculations are based on a purchase of $1,000 face amount.

newspapersample

 

Treasury Bills. Treasury bills are quoted differently from quotes for other government obligations since Treasury bills are issued at a discount from par, or face value, with the holder receiving full value at maturity.

Here is an Example of a Typical Newspaper Table.
Maturity Days to Maturity Bid Asked Change Ask Yield
May 25 ’10 43 5.59 5.55 -0.01 5.66
  • As was mentioned earlier, Treasury bills are short-term instruments with maturities of no more than one year. This particular Treasury bill matures in 43 days, on May 25, 2010.
  • The "bid" is the price at which the buyer is willing to purchase the security, while the "asked" is the price being sought for the security by the seller.
  • Change shows that yesterday’s bid price was 5.60.
  • The ask yield is the return investors would receive if they paid the ask price and held the bond to maturity.
 

All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.