Bonds (14)

How are bonds traded? (2)

The trading of bonds in the secondary market creates a market pricing of the bonds that depends on the supply and demand of the bonds, and the prevailing interest rates, among other factors.

When the market price of the bond is less than its par value, the bond is being sold at a discount.

When the market price of the bond is more than its par value, the bond is sold at a premium.

The secondary market plays an important role because:

i) Investors purchasing bonds at the primary market know there is an avenue to sell off their bonds.

ii) The secondary markets provide a gauge for issuers to price their primary issues.