par bond
Par Bond is a bond trading at exactly its face value, so what you pay is what you get back at maturity, no more, no less.
In plain English
At the Alaba market currency table, an uncle changes his dollars and gets exactly the naira the rate says he should, not a kobo more, not a kobo less. That clean, no surprises exchange is the feeling behind a par bond.
A bond has a face value, the amount printed on it, say ₦100,000, which is what the government or company promised to pay back when the bond matures. Bonds do not always trade at that printed figure. Sometimes they sell above it, sometimes below it, depending on how attractive their interest payments look compared to what else is available in the market that week.
A par bond is simply one trading at exactly its face value. If you buy a ₦100,000 par bond, you pay ₦100,000 today, not ₦95,000, not ₦103,000. This happens when the bond's coupon, the interest rate it pays, matches what investors currently expect to earn on similar bonds. Nothing pulls the price up, nothing pushes it down.
Think of a Nigerian federal government bond issued with a coupon rate that lines up neatly with current market rates. It sits at par. Compare that with an older bond paying a lower coupon than today's rates, which would trade below par because nobody wants to pay full price for weaker interest income.
For someone in London sending money home through bonds or advising a relative on where to park savings, understanding par matters because it tells you whether you are getting a fair entry point or paying a premium for someone else's good fortune.
Chidinma buys a Federal Government of Nigeria bond with a face value of ₦500,000. Its coupon rate matches current market rates exactly, so she pays ₦500,000 flat. No discount, no premium, just par.
Questions people ask
Why would a bond trade above or below par instead of staying at par?
It comes down to interest rates. If market rates rise after a bond is issued, its fixed coupon looks less attractive, so its price falls below par. If market rates fall, that same coupon looks generous, so the price rises above par.
Does buying at par mean I am guaranteed to get my money back?
You get the face value back at maturity if the issuer does not default. Par simply describes the price you pay today relative to that face value, it says nothing about the issuer's ability to pay you later.
Is a par bond a better deal than one trading above or below par?
Not automatically. What matters is the total return once you account for the coupon payments and the price you paid. A bond below par with a decent coupon can sometimes work out better than one sitting neatly at par.
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