“At par” is a financial term that refers to the situation when a financial instrument, such as a bond or a stock, is trading at its face value or nominal value. In other words, the market price of the security is equal to its stated value, and there is no premium or discount.
Here are two common contexts in which the term “at par” is used:
– For bonds, “at par” means that the bond is trading at its face value. The face value of a bond is the amount that the bond will be worth when it matures, and it’s also the amount that will be repaid to the bondholder at maturity. If a bond is trading at its face value, its coupon rate (the interest rate it pays) is approximately equal to the prevailing market interest rate.
– For stocks, “at par” is less common than in the context of bonds. However, it can be used to describe a situation where a stock is trading at its nominal or face value. Stocks typically don’t have a face value in the same way that bonds do, but in some cases, a company may issue stock at a certain nominal value, and if the market price matches this nominal value, it can be said to be trading “at par.”
In addition to bonds and stocks, the term “at par” can also be used in other financial contexts. For example, in the context of currency exchange, if the exchange rate is 1:1 between two currencies, it can be said that they are trading “at par.”
When a security is trading at par, there is no capital gain or loss associated with the transaction. Investors may use the term to express that the market price equals the nominal or face value, indicating a neutral position in terms of value appreciation or depreciation.