Pull to Par is the effect in which the price of a bond converges to

par value Par value, in finance and accounting, means stated value or face value. From this come the expressions at par (at the par value), over par (over par value) and under par (under par value). Bonds A bond selling at par is priced at 100% of face val ...

as time passes. At maturity the price of a debt instrument in good standing should equal its par (or

face value The face value, sometimes called nominal value, is the value of a coin, bond, stamp or paper money as printed on the coin, stamp or bill itself by the issuing authority. The face value of coins, stamps, or bill is usually its legal value. H ...

). Another name for this effect is reduction of maturity. It results from the difference between market

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...

and the

nominal yield The coupon rate (nominal rate, or nominal yield) of a fixed income security is the interest rate that the issuer agrees to pay to the security holder each year, expressed as a percentage of the security's principal amount or par value. The coupon ...

on the bond. The Pull to Par effect is one of two factors that influence the market value of the bond and its volatility (the second one is the level of market interest rates).

References

{{DEFAULTSORT:Pull To Par Bond valuation Options (finance)

See also

References