Lessons
- Common Options Embedded in a Bond Issue
- General Characteristics of Bonds
- Accrued Interest, Clean Price, and Dirty Price
- Bond Spreads
- Bid-Ask Spread of Bonds
- Impact of Liquidity on Bond Spreads
- Treasury STRIPS
- Floating Rate Notes
- Inflation-Indexed Bonds
- How to Read Bond Tables?
- How to Read Bond Quotes?
- “Pull to Par” of Bond Prices
Bid-Ask Spread of Bonds
When you buy and sell bonds in the secondary market, you do so at a slightly different prices. The bid price is the price at which the dealer is willing to buy the bond from you. The ask price the price at which the dealer sells the bonds to you.
The ask price is always higher than the bid price, and the difference between the two is called bid-ask spread. This is a type of transaction cost.
The bid-ask spread will generally be smaller for liquid bonds compared to the illiquid bonds.
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