Definition of Above par:
There is an inverse relationship between bond yields and prices. When yields drop due to declining interest rates in the economy, bond prices increase. Conversely, when interest rates rise, bond prices will decline, assuming no negative convexity. The basic reason for the inverse relationship is that an existing yield of a bond must match the yield of a new bond issued in a market with higher or lower prevailing interest rates.
Above par is a term used to describe the price of a bond when it is trading above its face value. A bond usually trades at above par when its income distributions are higher than those of other bonds currently available in the market. This occurs when interest rates have declined so that newly-issued bonds carry lower coupon rates.
Better than is usual or expected.
Bond, share, or other security selling at a price higher than its par value is said to be selling at above par or at premium. Bond prices are stated on a scale where the par value (whatever the amount) is assigned the number 100, and the premium is shown as a factor of 100. For example, a bond with a par value of $1,000 and priced at 110 is selling at $1,100. Also called at a premium or at premium.
How to use Above par in a sentence?
- Overall comfort was above par.
- Above par refers to a bond price that is currently greater than its face value.
- Bonds trade above par as interest rates decline, as the issuer's credit rating increases, or when the bond's demand greatly exceeds supply.
- Above par bonds are said to be trading at a premium and the price will be quoted above 100.
Meaning of Above par & Above par Definition