Bond Prices over Time.  Essentials of Investments. CPA Exam BAR.  Chapter 10. CFA Exam
Channel: Farhat Lectures. The # 1 CPA & Accounting Courses
Date: 2020-09-16

In this video I discuss bond prices. Bond prices are worth watching from day to day as a useful indicator of the direction of interest rates and, more generally, future economic activity.

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Everybody knows that high-quality bonds are a relatively safe investment. But far fewer understand how bond prices and yields work.

In fact, much of this information is irrelevant to the individual investor. It is used only in the secondary market, where bonds are sold for a discount to their face value.

That is, if you buy a bond that pays 1% interest for 3 years, that's exactly what you'll get. And when the bond matures, its face value will be returned to you. Its value at any time in between is of no interest to you unless you want to sell it.

And that's when it becomes important to understand the movements of bond prices.

Reading Bond Quotes
The chart below is taken from Bloomberg.com. Note that Treasury bills, which mature in a year or less, are quoted differently from bonds. T-bills are quoted at a discount from face value, with the discount expressed as an annual rate based on a 360-day year.1 For example, you will get a 0.07*90/360=1.75% discount when you purchase the T-bill.