Pull to Par is the effect in which the price of a
bond converges to
par value
In finance and accounting, par value means stated value or face value of a financial instrument. Expressions derived from this term include at par (at the par value), over par (over par value) and under par (under par value).
Bonds
A bond selli ...
as time passes. At
maturity the price of a debt instrument in good standing should equal its par (or
face value).
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, ...
and the
nominal yield 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).
See also
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References
{{DEFAULTSORT:Pull To Par
Bond valuation
Options (finance)