In the dealer's market for Treasury bonds, the ______ price of a bond is the dealer's purchase price.
Question
In the dealer's market for Treasury bonds, the ______ price of a bond is the dealer's purchase price.
Solution
In the dealer's market for Treasury bonds, the bid price of a bond is the dealer's purchase price.
The bid price reflects the maximum price that a buyer (in this case, the dealer) is willing to pay for a bond. Conversely, the dealer will sell the bond at the ask price, which is typically higher than the bid price. The difference between the bid price and the ask price is known as the spread, and represents the profit margin for the dealer. This bid-ask spread is a critical aspect of bond trading, influencing liquidity and market dynamics. Understanding these terms is essential for investors and traders as they navigate the fixed income market.
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