Why do the prices of PCC bonds fluctuate?

Bonds traded on the stock exchange also have a price, just like stocks. However, the bond price is stated as a percentage of the nominal value and not in euros as with stocks: If a bond is quoted at 100 percent, the price corresponds to the nominal value. The bond price is fundamentally the result of supply and demand. The more the interest rate of the bond corresponds to the current market interest rate, the closer the price is to the nominal value. If the market interest rate rises, the price of a bond usually falls because newly issued bonds are now subject to higher interest rates – in line with the higher market interest rate – and are more attractive. If the market interest rate falls, on the other hand, the bonds already issued are more attractive because they still pay higher interest rates. So their price rises.

In addition, the so-called liquidity of a bond, similar to stocks, also plays a role, i.e. how heavily a bond is traded. If there are only a few buyers or sellers of a security, then a single order may lead to price fluctuations. Such securities with regularly low stock exchange turnover are referred to as market tightness. The reason for this may be that the majority of the available securities are in firm hands. For example, investors in PCC bonds tend to hold our securities until the end of the term. Market tightness may also be due to the fact that, as with PCC bonds, the number of securities issued is comparatively small.

Market tightness often leads to large price fluctuations. For example, it happens again and again that purchase orders with low price limits are placed on the stock exchange in order to be able to acquire PCC bonds cheaply. These are usually orders for a few thousand euros. Although in most cases no transactions are processed at such prices, these small orders are relevant for the disclosure of the stock exchange price.

Therefore, price fluctuations can occur with PCC bonds without this reflecting the actual value of the bond – which is repaid unchanged at the nominal value of 100% on maturity.