The primary market
If you buy a bond when it's issued, or sold for the first time, you typically pay par value, or the face value of the bond. If you hold the bond until it matures, you earn the
coupon rate
for as long as you own the bond, and the
yield
is the same as the coupon rate. At maturity, you get par value back.
For example, if you buy $10,000 worth of 10-year fixed-rate bonds paying 4.5% at issue and hold your investment to maturity, the rate and the yield are both 4.5%. You would earn $4,500 in interest ($450 a year for ten years) and get $10,000 back at the end of the term.
Buying government bonds
Government bonds (U.S. Treasury bills and notes) are available directly to investors through a program known as
Treasury Direct,
as well as through brokers. Most agency bonds and municipal bonds are sold at a par value of $1,000, but require you to buy them in quantity, sometimes as much as $10,000 or $15,000 worth of that particular issue. Brokers, who often buy large denomination Treasurys ($25,000 or more), sell smaller amounts of these bonds
to individual investors. |
