Corporate Bond Quotes – What To Pay Attention To?
What should you pay attention to with corporate bond quotes? For many investors the first thing that is noticed with one of these quotes is the trading price but there are other considerations that need to be examined as well. The type of bond is important, because there are short term corporate bonds and those intended for longer time periods. It is important to identify the bonds which meet the desired time period, whether this is short, medium, or long term. You also need to remember that corporate bonds are quoted in a price that includes increments of 1/8 for the percentage of the bond par value. The secondary market for the bond being quoted is another important consideration. Some corporate bonds have a large secondary market while others may be hard to sell if the need arises because of a weak secondary market.
When evaluating corporate bond quotes you should pay close attention to the coupon range which is expressed in a percentage. The current yield range is also an essential consideration. This range will show the minimum and maximum current yield of the bond. Corporate bond yields can vary significantly so this factor needs to be evaluated closely. Check to see if the bond is callable. If you purchase a bond which is callable and the company calls in the bond you could lose out on future gains. Some investors stay away from any corporate bonds that are callable but others do not place heavy importance on this factor.
When you are viewing corporate bond quotes you should pay close attention to the rating and rating agency. There are a number of rating agencies that may be used to rate a corporate bond, and these include Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc., A.M. Best Company, Inc., Rating and Investment Information, Inc., Japan Credit Rating Agency, Ltd., Egan-Jones Rating Company, and others. Corporate bonds are given an alphabetical rating from AAA down to D, depending on the specific credit quality of the company. Both AAA and AA are considered the highest quality investment credit rating grades, while BBB and sometimes AA are considered medium quality. Anything lower than a BBB involves junk bonds of low quality or bonds which are already in default. The corporate bond rates offered will usually depend on the credit rating of the specific bond and company.
A corporate bonds list can help you locate many potential bonds but once you have a list of possibles you should evaluate the quote for each possible bond. Look at the possible yield and determine whether a specific bond is too risky. Corporate bond quotes that have high yields are generally also high risk, which is why junk bonds offer a much bigger possible reward than AAA rated blue chip bonds. Make sure that you do not step outside of your acceptable risk level when looking at quotes. You also need to remember that par is $1,000, so if the quote show 92 and 1/8 percent this translates into 92.125%.