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What is the way of pricing and trading of the bonds?
The price of a bond never remains constant on a given day, as it is true for any of the securities that are traded publicly. It is not necessary to hold a bond for its selling until its maturity rather it can be sold any time in a open market and this is the reason its price never remains static.
There are several factors affecting the price of a bond, but the most influential of them all is present interest rates doing rounds in an economy. The other factors include: maturity term, face value, yield, coupon payment and the issuer. The price of the bonds falls as soon as the prevailing interest rate in the market rises, bringing up the yield of the older bonds and making then stand at the same price level to that of the newer bonds, with higher coupon. On the contrary, the price of the bonds raises as soon as the prevailing interest rate in the market falls, bringing down the yield of the older bonds and making them stand at the same price level to that of the newer bonds, with lower coupon.
How the three terms bonds, bills & notes can be differentiated from each other?
To understand the difference among the three terms first one should know the purpose and the similarity of the three. All of them are the means of lending your money to the U.S. government itself, in return of which you get some interests paid by the government. The U.S. government issues those three to raise the money for paying off to the maturing debts and for other financial needs.
T-bills are traded at a discounted price from that of its face value and are issued for a short-term maturity (1 year or less). But there’s no provision of any interest before the date of maturity. The interest of T-bills would be the difference of the purchase price from the face value paid at maturity. But if it were sold to someone else before its maturity then the interest would be the difference between the purchase price and the selling price.
But the release of interest rate is semi-annually or half-yearly in case of treasury bonds and treasury notes. When it comes to the difference between notes and bonds, then it is their maturity term. Notes are issued with a maturity term of 2 to 10 years and the bonds with more than 10 years.