Quotes

Finance professionals speak what feels like a foreign language when discussing securities. Due to the fast-paced nature of the markets, there’s an incentive to convey information as fast as possible. When a quote is given on a security, it’s stating what the current market value is.

Sometimes quotes are simple, like they usually are with common stock. If you called your broker asking for a quote on a stock, they would probably say something like:

ABC stock is trading at $50 per share.

Bond quotes are more complex and difficult to understand initially. If you were to call your broker and ask for a quote on a corporate bond, they may say something like:

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

They’re really saying the bond is trading at $955. Think about it - which can you say faster?

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 asked to identify a corporate bond quote, you should look for a big number followed by a fraction (like 95 $\frac{\text{1}}{\text{2}}$). The fraction following the big number 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 easily 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 of the quotes listed above are in eighths and reduced to the lowest possible fraction. Corporate bonds quotes are percentage of par quotes, which means they relate back to their par value. If a bond is quoted at 98, it’s really saying a 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. However, the market trades bonds at various prices. When a bond does not trade in $10 increments, that’s when fractions are utilized. Our example bond quote above is trading at $987.50, which translates to a quote of 98 $\frac{\text{3}}{\text{4}}$.

Percentage of par quotes utilize bond points.

Again, if a bond is worth 98 bond points, it’s really worth $980 (98 x $10). There are various ways to refer to these quotes, but it always works the same way. Whether it’s referred to as a percentage of par quote or a bond point quote, both refer to a 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 of the bond being quoted, specifically in $1,000 units (M is the Roman numeral for 1,000). Therefore, the bond 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 as simple as possible with ‘M,’ pretend it’s not there. Buying a 10M bond is no different than buying ten $1,000 par bonds. It’s just another part of the bond language that attempts to efficiently convey information.

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 discuss the two new elements. 10s references the bond’s coupon (interest rate). Simply replace the letter ‘s’ with %, and you have a 10% coupon bond that will pay $100 in interest per every $1,000 par. This is a $5,000 par bond, so it will pay $500 in annual interest (10% x $5,000).

It’s possible you could also see a quote reference a zero coupon bond. Instead of a number followed by the letter ‘s,’ it would instead appear as:

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

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