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Par Value

The par value — also called face value or principal — is the amount that a bond issuer promises to repay when the bond matures. For example, a bond with a $1,000 par value will repay $1,000 on the maturity date. The coupon payment is calculated as a percentage of par value. A bond with a 5% coupon and $1,000 par value pays $50 annually.

For the price at which bonds trade, see yield to maturity. For the coupon based on par, see coupon rate. For bonds traded at discount or premium, see zero-coupon bond.

Par value and coupon payments

Par value is the basis for calculating coupon payments. A bond with a 4% coupon and $1,000 par value pays $40 annually (4% × $1,000). A bond with 5% coupon and $5,000 par value pays $250 annually (5% × $5,000).

The coupon is fixed at issuance and never changes. A bond issued with 4% coupon and $1,000 par value will always pay $40 per year, for the bond’s entire life.

When the bond matures, the issuer repays the par value ($1,000 or $5,000 in the examples above) plus the final coupon payment.

Market price vs. par value

A bond’s market price is determined by supply and demand, not by its par value. When interest rates change, bond prices move inversely:

  • Rates rise → bond prices fall (below par, a “discount”)
  • Rates fall → bond prices rise (above par, a “premium”)

A $1,000 par bond might trade at $950 (discount) when rates rise, or at $1,050 (premium) when rates fall.

The bondholder will receive par value ($1,000) at maturity, but the market value fluctuates daily.

Par vs. premium vs. discount

Over time, a premium bond’s price converges to par (as maturity approaches). An investor holding a premium bond experiences capital loss as the price declines toward par. Conversely, a discount bond’s price converges upward to par, providing capital gain.

Denominations

Most corporate and government bonds have par values of $1,000. Some institutional bonds have par values of $5,000 or $10,000. Municipal bonds often have par values of $5,000.

For Treasury securities, par value is $100 (for Treasury bills) and $1,000 or higher for longer-dated securities.

Callable bonds and par

Many callable bonds are callable at par or slightly above (101–105). If a bond is callable at 101, the issuer can redeem at $1,010 per $1,000 par value.

For investors, a callable bond trading above the call price faces call risk. If a bond is trading at $1,050 and the call price is $1,025, calling would limit the investor’s upside.

Accrued interest and settlement

When a bondholder sells a bond between coupon dates, the buyer must pay accrued interest to the seller — the portion of the next coupon that the seller has earned.

Accrued interest is calculated as a percentage of the annual coupon based on the days elapsed since the last coupon date. The clean price (excluding accrued interest) and the dirty price (including accrued interest) are quoted separately.

Settlement occurs at the dirty price, which includes accrued interest. The clean price is used for market pricing and yield calculations.

Par and credit risk

Par value is what bondholders expect to receive at maturity. If an issuer defaults before maturity, bondholders typically recover less than par (through restructuring or bankruptcy proceedings).

A bond trading significantly below par often signals credit distress. A bond trading at 60 cents on the dollar suggests the market expects 40% loss from default or restructuring.

Par bonds and yield curves

Yield curve quotes often assume par bonds (bonds trading at par). The Treasury yield curve is quoted in terms of par yields — the coupon a newly issued Treasury would need to trade at par given current market conditions.

This convention makes yield curve quotes directly comparable across maturities.

Distinctions: par vs. principal vs. face value

  • Par value = the contractual amount
  • Face value = synonym for par value
  • Principal = the par amount (used interchangeably)
  • Market price = what the bond trades for (different from par)
  • Redemption value = par value (what’s redeemed at maturity)

These terms are used somewhat interchangeably, but par value is the most formal and precise.

See also

Wider context