Corporate bonds are quoted as a percentage of face value on a 100-point scale, where 100 means the bond is trading at par. Because most corporate bonds carry a $1,000 face value, every point in the quote equals $10: a bond quoted at 98.50 costs $985, and one quoted at 102.25 costs $1,022.50.1Fidelity. Corporate Bonds That percentage-of-par convention is the foundation, but a usable quote also includes an identifier, a coupon, a maturity date, and at least one yield figure, and the cash you actually hand over at settlement is not the number you see on the screen.
The 100-Point Price Scale
The quoted price is not a dollar amount. It is a percentage of par, shown on a scale where 100 equals face value. Below 100 is a discount; above 100 is a premium. Corporate bonds are quoted in decimals, typically down to an eighth of a point (0.125). Treasuries use a different convention, quoted in 32nds of a point.
A discount bond gives the buyer a built-in gain at maturity, because the issuer redeems at full par regardless of what you paid. A premium bond does the opposite: you pay more than par and absorb the difference when the bond is redeemed at $1,000. Both situations feed directly into the yield figure the quote shows next to the price.
What Else the Quote Shows
Price alone will not tell you which bond you are looking at. Every corporate bond carries a nine-character CUSIP, a unique identifier assigned by the Committee on Uniform Securities Identification Procedures.2Investor.gov. CUSIP Number A single company can have dozens of outstanding issues with different coupons, maturities, and call features, so the CUSIP is the only reliable way to confirm the specific bond.
Alongside the CUSIP and price, a quote typically shows the issuer’s name, the coupon rate, the maturity date, and a yield. The coupon rate is stated as a percentage of par. A 5% coupon on a $1,000 par bond pays $50 per year, almost always split into two semiannual payments of $25.3FINRA. Bonds Maturity is the date the issuer must repay principal in full.
The Clean Price Is Not What You Pay
The quoted price is the “clean price,” which strips out any interest that has built up since the last coupon payment. What you actually pay at settlement is the “dirty price”: clean price plus accrued interest. Unless you buy on a coupon date, the settlement invoice is always higher than the quote.
Accrued interest reimburses the seller for holding the bond between coupon dates. The buyer will receive the full next coupon, so the buyer pays the seller for the portion earned during the seller’s holding period. Corporate bonds use a 30/360 day-count convention, which treats every month as 30 days and every year as 360 days.4FINRA. Accrued Interest Calculator
An example: buy a bond with a 5% coupon ($25 per semiannual period) exactly two months after the last coupon date. Under 30/360, that is 60 days out of a 180-day semiannual period, or roughly $8.33 in accrued interest added on top of the clean price.
Reading the Yield Number
The price tells you what the bond costs. The yield tells you what it earns. The two move inversely: when price rises, yield falls, because a higher price buys the same fixed stream of coupon payments.
Current Yield
Current yield is the annual coupon divided by the current market price. A $1,000 par bond with a 5% coupon trading at $985 has a current yield of about 5.08% ($50 รท $985). Easy to calculate, but incomplete: it ignores the gain or loss you will realize when the bond matures at par.
Yield to Maturity
Yield to maturity (YTM) is the figure that matters for comparing bonds. It accounts for every coupon payment, the time value of money, and the gap between your purchase price and par at maturity. YTM runs higher than the coupon rate on a discount bond and lower on a premium bond. This is the yield most quotes display next to the price.
Yield to Worst on Callable Bonds
Many corporate bonds carry a call provision that lets the issuer redeem early, usually at or above par, most often when rates fall enough that the company can refinance more cheaply. An early call ends your income stream and forces you to reinvest at lower prevailing rates.
One common structure is the make-whole call, which pays the net present value of remaining coupons and principal, discounted at a Treasury-linked rate plus a small spread. That produces a redemption price well above par.
For callable bonds, the yield figure to focus on is yield to worst (YTW): the lowest yield you could receive across all possible call dates and maturity. On a premium bond, the yield to the nearest call is almost always lower than YTM, and that worse case is what should drive the decision. Dealer confirmations for callable bonds must show the yield calculated to the lowest outcome across call dates, par option dates, and maturity.
Why Two Bonds With the Same Coupon Quote Differently
Corporate bonds carry credit risk that Treasuries do not, and the market prices that risk through yield spreads. A spread is the difference between a corporate bond’s yield and the yield on a Treasury of similar maturity, in basis points (one basis point equals 0.01%).5Financial Industry Regulatory Authority (FINRA). Spread the Word: What You Need to Know About Bond Spreads A 150 basis point spread means the corporate bond yields 1.50 percentage points more than the comparable Treasury.
Rating agencies sort bonds into two broad tiers. Investment-grade means BBB- or higher from S&P and Fitch, or Baa3 or higher from Moody’s. Anything below is speculative grade, often called high-yield. Lower ratings mean wider spreads. Within each letter grade, Moody’s uses numbers (A1 is better than A2), while S&P and Fitch use plus and minus signs (A+ is better than A).6Fidelity. Bond Ratings
Spreads move with market sentiment. When investors feel confident, spreads narrow; during stress, they widen sharply. Prices react to those changes even when Treasury yields hold steady, so watching credit spreads matters as much as watching interest rates.
Checking Whether a Quote Is Fair
Corporate bonds do not trade on a centralized exchange. They trade over-the-counter through dealers, and the quotes you see are typically indicative: the price at which a specific dealer is willing to buy (bid) or sell (ask). Different dealers can quote the same bond differently at the same moment.
TRACE Data
FINRA’s Trade Reporting and Compliance Engine (TRACE) requires firms to report secondary-market corporate bond transactions as soon as practicable, and no later than 15 minutes after execution.7Financial Industry Regulatory Authority. Trade Reporting and Compliance Engine More than 80% of corporate and agency bond transactions actually appear within five minutes.8Financial Industry Regulatory Authority (FINRA). What Is TRACE and How Can It Help Me? TRACE does not generate quotes; it records completed trades. Before accepting a dealer’s price, look up recent TRACE data on FINRA’s BondFacts or your brokerage platform to see where the bond has actually been changing hands.
Markup Disclosure
Since May 2018, FINRA Rule 2232 has required dealers to disclose their markup or markdown on retail corporate bond trades, in both dollars and as a percentage of the prevailing market price, when the dealer bought or sold the same bond in an offsetting trade on the same day.9FINRA. 2232. Customer Confirmations That disclosure appears on your trade confirmation and lets you evaluate cost beyond the quoted price.
Bid-Ask Spread and Trade Size
The gap between a dealer’s bid and ask is your implicit transaction cost. On large, actively traded investment-grade issues, that spread can be tight. On smaller or less liquid issues, it can be wide. Trade size matters too. Dealers offer tighter pricing on larger orders, and institutional clients tend to see better quotes than retail buyers.
Settlement and Lot Sizes
Corporate bond trades settle T+1, one business day after the trade date. That has been the standard since May 28, 2024, when the SEC shortened the cycle from T+2.10FINRA. Understanding Settlement Cycles: What Does T+1 Mean for You? Settlement is when payment and delivery actually happen, and it is the date used to calculate accrued interest.
A standard institutional round lot is $100,000 face value or a multiple of it. Anything smaller is an odd lot, and odd lots typically carry higher transaction costs because they are less efficient for dealers to handle. Most individual investors trade in odd lots, which is one reason retail pricing tends to be less favorable than institutional pricing. Brokerage minimums often start at one bond ($1,000 face value) or five bonds ($5,000), and per-bond cost improves as order size grows.
Why the Quoted Yield Is Not Your After-Tax Return
Yields on a quote are pre-tax. The gap between what you pay and $1,000 par has direct tax consequences the yield figure does not capture.
Premium Bonds
Buy a bond above par and you can amortize the premium over its remaining life. Each year, a portion of the premium offsets your taxable coupon income.11eCFR. 26 CFR 1.171-2 – Amortization of Bond Premium Amortization also gradually reduces your cost basis, so there is no additional capital loss to claim at maturity. For taxable bonds, the amortization election, once made, applies to all bonds you hold and is irrevocable.
Original Issue Discount Bonds
Bonds originally issued below par carry an original issue discount (OID). You must include a portion of that discount in gross income each year, even though you do not receive the cash until maturity. The annual accrual uses a constant-yield method based on the bond’s YTM.12Office of the Law Revision Counsel. 26 USC 1272 – Current Inclusion in Income of Original Issue Discount Each accrual raises your basis, so there is no extra gain to report when the bond matures at par.
Market Discount Bonds
If you buy a bond on the secondary market below par, and the bond was not originally issued at a discount, the gap is a market discount. You are not required to accrue it annually. The gain is recognized as ordinary income when you sell or when the bond matures. You can elect annual accrual to spread the tax, but the default rule defers it to disposition.
The line between OID and market discount matters. The question is whether the discount existed at issuance or arose later because market rates moved. Your brokerage statement and the bond’s offering documents will indicate whether OID applies.