Friday, November 18, 2011

What does it mean for Bonds to trade at Premium or Discount?



Last week we discussed the bond current yield, this week we discuss what it means for Bonds to trade at a Premium or Discount.
Par value is the issue price of a bond. Par value for FGN bonds is N100 BroadStreetLagos.Com/Bond-Screener/Par. Once a bond is traded on the open market it becomes subceptible to market perceptions, demand and supply. The result is a bond price can either drop below par value (trading at a discount BroadStreetLagos.Com/Bond-Screener/Discount) or move above it (trading at a premium BroadStreetLagos.Com/Bond-Screener/Premium). These moves have implications for current yields and yields to maturity.

Bond traders tend to track these changes in order to identify opportunities to enhance portfolio returns. Premium subscribers to broadstreetlagos.com have access to a tool that makes it easy to identify these changes in bond prices. Last week we noted the narrowing of the spread between bond and dividend yields, the econonmist magazine in its September 17, 2011 issue published an article that gives insight on a similar development in european securities. We share that here http://www.economist.com/node/21529057. Our markets clearly are exhibiting similar characteristics and is something traders can feed into their search for alpha.

A premium profile on BroadStreetLagos.com gives you access to the data you need. Over the next few weeks we will discuss more indicators, phrases and companies.

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