Quotes

Finance professionals often use shorthand when they talk about securities. Markets move quickly, so there’s a strong incentive to communicate prices as efficiently as possible. A quote tells you the security’s current market value.

Sometimes quotes are straightforward, like they usually are with common stock. If you called your broker for a stock quote, you might hear:

ABC stock is trading at $50 per share.

Bond quotes are more complex and can feel unfamiliar at first. If you called your broker for a quote on a corporate bond, you might hear:

The ABC corporate bond is trading at 95 $\frac{\text{1}}{\text{2}}$.

They’re saying the bond is trading at $955. Think about which is faster to say:

Ninety five and a half (95 $\frac{\text{1}}{\text{2}}$)

vs.

Nine hundred fifty-five dollars ($955)

Corporate bonds are quoted in $\frac{\text{1}}{\text{8}}$ths (eighths). When you’re identifying a corporate bond quote, look for a whole number followed by a fraction (like 95 $\frac{\text{1}}{\text{2}}$). The fraction should always be in eighths or reduced from an eighth (for example, $\frac{\text{4}}{\text{8}}$ would be reduced to $\frac{\text{1}}{\text{2}}$). If the fraction isn’t in eighths or isn’t reduced, it isn’t a valid corporate bond quote.

How do you turn a fractional corporate bond quote into a price? You can do it using Achievable’s “fraction-boot-scoot” method. Let’s walk through an example:

A corporate bond is quoted at 102 $\frac{\text{1}}{\text{8}}$. What is its price?

Step 1: calculate the fraction

• $\frac{\text{1}}{\text{8}}$ = 0.125

Step 2: boot the decimal back to the big number

• 102 + 0.125 = 102.125

Step 3: scoot the decimal once over to the right

• $1,021.25

Think you can do it on your own? Give it a try!

A bond is quoted at 98 $\frac{\text{3}}{\text{4}}$. What is its price?

As you can see, both quotes above are in eighths and reduced to the lowest possible fraction. Corporate bond quotes are percentage of par quotes, meaning they’re stated as a percentage of the bond’s par value. If a bond is quoted at 98, it’s really saying the bond is trading at 98% of par ($1,000), which is $980.

If bonds only traded in $10 denominations, there would be no need for fractions. But bonds trade at many different prices. When a bond doesn’t trade in $10 increments, fractions are used to express the extra amount. For example, a price of $987.50 corresponds to a quote of 98 $\frac{\text{3}}{\text{4}}$.

Percentage of par quotes utilize bond points.

So if a bond is worth 98 bond points, it’s worth $980 (98 x $10). You’ll hear these quotes described in different ways (percentage of par quote, bond point quote), but they all refer to the same thing: the bond’s market price.

Bond quotes may also contain the letter ‘M.’ For example:

10M bond trading at 95 $\frac{\text{1}}{\text{2}}$.

The ‘M’ refers to the overall par value being quoted, specifically in $1,000 units (M is the Roman numeral for 1,000). So the quote above translates to:

• Ten $1,000 par bonds trading for $955 each

or

• $10,000 par value bond trading for $9,550

To keep it simple with ‘M,’ you can treat it as a quantity indicator. Buying a 10M bond is the same as buying ten $1,000 par bonds. It’s just part of the bond “language” used to convey information quickly.

There are a few other elements of a corporate bond quote to be aware of. Here’s an example of a full quote:

5M 10s ABC Debenture M’40 @ 95 $\frac{\text{1}}{\text{2}}$

You should already feel comfortable with three parts of this quote:

• 5M = $5,000 par (or 5 $1,000 par bonds)
• ABC Debenture = Long term unsecured bond from ABC Company
• 95 $\frac{\text{1}}{\text{2}}$ = Trading at $955

Let’s look at the two new elements. 10s references the bond’s coupon (interest rate). Replace the ‘s’ with %, and you have a 10% coupon bond.

• A 10% coupon pays $100 of interest per year for every $1,000 of par.
• This bond has $5,000 par, so it pays $500 in annual interest (10% x $5,000).

You might also see a quote for a zero coupon bond. Instead of a number followed by ‘s,’ it would appear as:

5M Zr ABC Debenture M’40 @ 95 $\frac{\text{1}}{\text{2}}$

We also see another ‘M’ in the full quote, but this time it’s M’40. When you see the letter ‘M’ followed by an apostrophe and a number, the quote is referencing the maturity year. This bond matures in the year 2040.