Bond Prices and Valuations

Be it market volatility or easy access to information, today’s investors take an active role in monitoring their investments

From periodic portfolio reviews to a daily look at holdings via Client Access, investment valuations are becoming more frequently used not just by active investors, who rely on current pricing to make their investment decisions, but also by buy-and-hold investors. Stocks are usually evaluated based on their closing prices. Also, in clients’ accounts stock prices are generally updated throughout the day. Bonds, however, do not have closing prices, as a majority trade in over-the-counter markets. Additionally, bond prices are affected by different factors and, consequently, are often derived using pricing models.

In order to provide investors with an independent source for bond valuations, Raymond James uses outside pricing services. In general, pricing services utilize several data points for price calculations. These may take in to account actual trades (including quantity and bid/ask spread), historical comparisons, pricing models and matrices. The current market environment presents additional challenges, which may affect bond valuations and, consequently, make statement prices less reliable indications of where certain bonds may be trading.

Bond prices are determined by what someone is willing to pay – a bid price based on the issuer, its credit rating, coupon rate, time left until maturity and special redemption features – and what a bond owner would like to receive - an offer or ask price. The difference between the two prices is referred to as the spread. With recent significant increases in price volatility, the spreads between bids and asks for many bonds have increased to historically wide levels, making bond valuations less precise. Bond prices reflected on statements are best-effort estimates, useful for evaluating a portfolio and establishing an allocation mix. However, they should not be interpreted as actual sale prices or actual bids.

Third-party resources may provide comparative prices for evaluation purposes. Bond prices on Raymond James statements may be affected by current market conditions, issuer’s credit rating, order size and other features as well as by valuation methods used by independent pricing services. Investors should carefully review their monthly statements and monitor changes in bond prices. However, investment decisions should not be based solely on statement pricing as it may not be indicative of current market prices. Any investor interested in selling bonds prior to maturity should seek assistance from a financial advisor to determine an actual bid price.

The information herein was obtained from sources which we believe reliable, but the accuracy of which cannot be guaranteed. All bonds are subject to price and availability. We may, from time to time, have a position in the securities mentioned and may buy or sell such securities in the course of our regular business. Investors are advised to review alternatives with a financial advisor prior to making an investment decision.

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