Reading the Bond Tables in the Wall Street Journal Basic Information And Tutorials

You can find daily updates on the prices and yields for Treasury bills, notes, and bonds and for corporate bonds on the Wall Street Journal Web site or on Yahoo finance (finance.yahoo.com).

Treasury Bonds and Notes
The table below contains data on five U.S. Treasury bonds and notes from the many bonds and notes that were being traded on secondary markets on July 16, 2010. Treasury notes have maturities of 2 years to 10 years from their date of issue; Treasury bonds typically have a maturity of 30 years from their date of issue.

The first two columns tell you the maturity date and the coupon rate. Bond A, for example, has a maturity date of August 15, 2015, and a coupon rate of 4.250%, so it pays $42.50 each year on its $1,000 face value. The next three columns refer to the bond’s price.

All prices are reported per $100 of face value. The numbers following the colon refer to thirty-secondths of a dollar. For Bond A, the first price listed, 112:08, means “112 and 08/32,” or an actual price of $1,122.50 for this $1,000 face value bond.

The bid price is the price you will receive from a government securities dealer if you sell the bond. The asked price is the price you must pay the dealer if you buy the bond. The difference between the asked price and the bid price (known as the bid–asked spread) is the profit margin for dealers.

Bid-asked spreads are low in the government securities markets, indicating low transactions costs and a liquid and competitive market. The “Chg” column tells you by how much the bid price increased or decreased from the preceding trading day.

For Bond A, the bid price rose by 8/32 from the previous day. The final column contains the yield to maturity, calculated using the method we discussed for coupon bonds and the asked price. The Wall Street Journal reports the yield using the asked price because readers are interested in the yield from the perspective of the investor.

So, you can construct three interest rates from the information contained in the table: the yield to maturity just described, the coupon rate, and the current yield (equal to the coupon divided by the price: $42.50/$1,122.50, or 3.79% for Bond A).

Note that the current yield of Bond A is well above the yield to maturity of 1.7066%. This illustrates that the current yield is not a good substitute for the yield to maturity for instruments with a short time to maturity because it ignores the effect of expected capital gains or losses.


Treasury Bills
The table below shows information about U.S. Treasury bill yields. Recall that Treasury bills are discount bonds, unlike Treasury bonds and notes, which are coupon bonds. Accordingly, they are identified by only their maturity date (first column).

In the Treasury bill market, following a very old tradition, yields are quoted as yields on a discount basis (or discount yields), rather than as yields to maturity.* The bid and asked columns of Treasury notes and bonds quote prices, while the bidand asked columns for Treasury bills quote yields.

The bid yield is the discount yield for investors who want to sell the bill to dealers. The asked yield is the discount yield for investors who want to buy the bill from dealers. The dealers’ profit margin is the difference between the asked yield and the bid yield.

In comparing investments in Treasury bills with investments in other bonds, investors find it useful to know the yield to maturity. So, the last column shows the yield to maturity (based on the asked price).

Note that in both previous tables, the yield to maturity rises the further away the maturity date is.

THE DOW JONES INDUSTRIAL AVERAGE BASIC AND TUTORIALS

THE DOW JONES INDUSTRIAL AVERAGE BASIC INFORMATION
What Is The Dow Jones Industrial Average?


Wall Street has several ways to keep track of the market. One of the easiest ways to find out how the market is performing each day is to look at a newspaper, television, or the Internet.

Typically, people look at the Dow Jones Industrial Average (DJIA), the most popular method of determining whether the market is up or down for the day.

The Dow Jones Industrial Average
In 1884, a reporter named Charles Dow calculated an average of the closing prices of 12 railroad stocks; this became known as the Dow Jones Transportation Average. His goal was to find a way to measure how the stock market did each day. He then wrote comments about the stock market in a four-page daily newspaper called a “flimsie,” which later became the Wall Street Journal.

A few years later, the company Charles Dow helped start, Dow Jones, launched the Dow Jones Industrial Average, consisting of 12 industrial stocks. If you know about averages, you know that you basically add up the prices of the stocks in the index and divide by the number of stocks to create a daily average.

By watching the Dow, you can get a general idea of how the market is doing. It also gives us clues to the trend of the market, whether it is going up, down, or sideways. (The trend is simply the direction in which a stock or market is going.)

The original 12 stocks in the Dow were the biggest and most popular companies at the end of the nineteenth century—for example, American Tobacco, Distilling and Cattle Feeding, U.S. Leather, and General Electric, to name a few. Guess which stock still remains in the index? (If you guessed General Electric, you are right. The other corporations either went out of business or merged with other corporations.)

By 1928, the Dow Jones Industrial Average was increased to 30 stocks, which is the number of stocks in the index today. (By the way, this index is sometimes called the Dow 30.) These 30 stocks are a cross section of the most important sectors in the stock market. (A sector is a group of companies in the same industry, such as technology, utilities, or energy.)

Over time, the Dow changed from an equal-weighted index to one in which different stocks have different weights. This means that stocks with a higher weighting affect the Dow index more than stocks with a lower weighting.

For example, since American Express is weighted high in today’s market, if this stock is having a bad day and falls by several points, the Dow could end up down for the day. It’s easy to find out how the Dow did each day—it’s reported in the media.

Since more than half of the public is invested in the stock market, there is a lot of interest in what the Dow does each day. Therefore, when we talk about the Dow Jones being up or down each day, we’re really talking about a representative group of 30 stocks, the Dow 30.

Even if the market is down for the day, the stock you own could be up, or the other way around.