Bonds, Selling Before Maturity

If you hold a bond to maturity (when it becomes due), you know how much you'll get back-the face value or "par value." But if you sell your bond in the secondary bond market before it matures, you may get a far different amount. If, for example, interest rates have risen since you purchased the bond, you may have to sell at a discount below par and lose money. But if interest rates have fallen, you may be able to sell at a premium above par.

If you want to sell your bond before it matures, you may have to pay a commission for the transaction or your broker may take a "markdown." A markdown is an amount-usually a percentage-by which your broker reduces the sales price to cover the cost of the transaction.

You should ask your broker how much the markdown will be before you sell a bond. You may also want to compare the cost of selling a bond at more than one brokerage firm. The markdown (as well as the price of the bond) may vary with different firms. Bonds that are actively traded may have lower markdowns. Brokers typically do not list their markdowns separately on the confirmation statement you receive.

For more information about bonds, please read one of The Securities Industry and Financial Markets Association's publications, An Investor's Guide to Bond Basics.