Definition of yield-basis


Quoting yield instead of the dollar amount during quoting bond price is a method named as yield basis. As bond yield determines its value therefore it is more useful to investors.


Company is ABC, bonds outstanding are $20,000,000, interest is 5% per year (or $50 per $1,000 bond), bonds’ trading price is $900 a piece. Hence, yield basis is $50/$900 = 0.0555 or 5.55%

Why it matters?

Dollar prices even being helpful don’t account for other characteristics of bond. Particularly, it indicates trading of a bond whether it is at a discount or a premium. Greater it is than coupon rate, the bond trading will be at a discount; On the other hand, lower the it is than coupon rate, it would be premium bond trading. Thus, generally bonds are traded on yield basis particularly treasury.

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