Corporate Bond Quotes Key Terms

Know the important words pertaining to corporate bond quotes

By M. Krasniak, Freelance Writer/Editor

A corporate bond quote is composed of a variety of information about the bond itself. The first is the price, which relates to the coupon offered on the bond and prevailing interest rates. The maturity of the bond is also an important factor because the farther away the maturity date, the riskier the bond. The credit rating and whether or not the bond is callable are also very important factors. To help you better understand corporate bond quotes, here are some key words that will come up in your research.

Bond price

The price of the bond is set in the corporate bond market through the interaction of supply and demand. If the coupon rate on the bond is higher than the interest rate on similar instruments, the price of the bond increases because people want the higher coupon rate.
Try: BNET offers more information on bond pricing.

Coupon rate

The coupon rate tells us the amount of money the bond owner receives every six months. The coupon rate is quoted as a percentage rate for the whole year, so to determine how much each semi-annual coupon payment is, the bond owner must multiply the coupon rate by the dollar amount of bonds owned and then divide by two. The coupon rate is an important component of the bond quote, because investors like higher coupon payments.
Try: StreetAuthority provides a detailed definition of the coupon rate.

Current yield

The current yield is a very convenient way of measuring the expected future return from owning a bond. To calculate current yield, divide the annual coupon payment by the current price of the bond. The result is a percentage that gives an idea of what the annual return will be if you buy the bond at that price and hold it for at least one year.
Try: WiseGEEK has a very comprehensive discussion of current yield.

Maturity date

The maturity date of the bond tells the investor when the last coupon will be paid. It is also the date when the money borrowed through the bond issue will be repaid. Bonds with maturity dates farther in the future tend to be more risky than shorter-term maturity bonds. This is because more things can go wrong during a long time period.
Try: Check out Investopedia for a definition of the maturity date.

Bond rating

Each corporate bond is given a bond (credit) rating by a credit rating agency. Credit ratings give the investor an idea of the level of default risk faced when buying the bond. A firm with a good credit rating is likely to make all the coupon payments, whereas a firm with a bad credit rating is likely to miss coupon payments.
Try: Find the definition of a credit rating for a bond on TheFreeDictionary. Investorwords provides more information on bond ratings.

Callable

Normally, bonds can only be repurchased by the original issuer if the bond investor is willing to sell the bond back to the issuer. Callable bonds get around this problem because the issuer of a callable bond retains the right to repurchase the bonds at the issuer's discretion.
Try: For a comprehensive discussion of callable bonds, visit the Securities and Exchange Commission.