Most bonds sell in units of $1,000. For all kinds of weird historical reasons, the thousand figure there isn't the primary quote when brokers quote bond prices...rather, everything is out of 100. So, a bond trading "at 99 point 2" is actually likely a thousand dollar bond selling for 992 dollars.
That 99.2 is "below par" and if a bond were "above par", it'd be trading at some value over the quoted 100 or some figure above $1,000.
Why do bonds move above and below par? Lots of reasons. The biggest is perceived risk that the bond won't actually pay off its borrowed principal. That's individual bond risk.
But the overall market can change as well. So, the government perceives inflation to be a strong force on the horizon so the Fed quickly raises prevailing interest rates. And if they do, bond prices fall across the board. So, a bond with a 6% coupon that used to be trading above par (which is to say, above a grand), in this scenario, could drop below par if prevailing rates suddenly go up.
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Finance: What are Bonds?393 Views
Finance a la shmoop what is a bond? well a bond is your word your promise your [Women shake hands]
handshake your John Hancock on a contracted piece of paper your mortgage
your credit card debt yeah their bonds to your "I swear I'm not a deadbeat"
declaration... that's your bond right well bonds come [Man lying on a sofa]
in many complex flavors and compositions simply put bonds are loans aka debt you
borrow money or you promise or you you bond that
you'll pay it back when you borrow money the amount you borrow is called the
principal you pay rent on that amount borrowed and that rent is called [rent appears at bank]
interest to the entity loaning you the money that interest is called yield
thank you very much for the yield like if the lender rents you a grand for a
year and you pay them a thousand 80 bucks at year-end paying back the
principal and then the rent on the money while the lender will have had a yield [Yield of lender appears]
of 8% on the grand that they loaned you so that's a bond you borrow money you
pay it back and if you don't the person who loaned you the dough well they [Person stamped with property of shmoop bank]
generally own your tuchus and yeah you know what Shakespeare said about bonds
yeah that's what he said so if you don't really know what you're doing don't do
it...
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