What is Market Value?
Market value — in German: Kurswert or Marktwert — is what you actually pay to buy a bond or receive when you sell it. Unlike face value (which is fixed), market value changes every trading day.
Market value is the current trading price of a security, determined by supply and demand in the market. For bonds, it's quoted as a percentage of face value (e.g., 98.5 means 98.5% of face value). It fluctuates based on interest rates, credit quality, and time to maturity.
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How Bonds Are Quoted
Bond prices are quoted as a percentage of face value, not in currency. A price of 102 means 102% of face value. For a €1,000 face value bond, that's €1,020. This convention makes comparing bonds with different face values easy.
What Moves Market Value
Three main factors: (1) Interest rates — when rates rise, bond prices fall; (2) Credit quality — if issuer's creditworthiness drops, price falls; (3) Time to maturity — prices converge toward face value as maturity approaches.
Market Value vs. Face Value
| Aspect | Market Value | Face Value |
|---|---|---|
| Definition | Current trading price | Printed/nominal amount |
| Changes | Fluctuates daily | Fixed forever |
| Determined by | Supply and demand | Issuer at issuance |
| Used for | Buying and selling | Coupon calculation, repayment |
Practical Example: Price Fluctuation
A 10-year Bund issued at par (100) with a 2% coupon. If market rates rise to 3%, the bond's price falls to about 91 — investors won't pay 100 for a 2% coupon when new bonds offer 3%. If rates fall to 1%, the price rises to about 109 — the 2% coupon is now valuable.
Frequently Asked Questions
Why doesn't a bond's price equal its face value?
Because market conditions change after issuance. Interest rates move, credit quality shifts. The market price adjusts so that the bond's yield matches current market rates.
What is clean price vs. dirty price?
Clean price is the quoted market price. Dirty price adds accrued interest — it's what you actually pay. Dirty price = Clean price + Accrued interest.
Do I get face value or market value at maturity?
Face value. At maturity, the issuer repays the face value regardless of what price you paid. That's why prices converge to 100 as maturity approaches.
Why do bond prices fall when rates rise?
Because existing bonds with lower coupons become less attractive compared to new bonds with higher coupons. Prices must fall so yields rise to match market rates.
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