Pull To Par

A strategy to remain passable at golf even if you have a funky swing? A service offered at some massage parlors?

Nope. It’s a factor influencing the price of bonds in the open market.

Bonds are issued with a par value. This figure represents the amount the bond will be worth if you hold it until maturity. Meanwhile, bonds trade on the open market. The price fluctuates based on various factors, including the chance that the borrower might default on the bond.

As maturity gets closer, the future becomes more visible. The chances that something weird or unexpected will happen gets smaller. Obtaining the entire par value of the bond becomes more likely.

Over time, bond prices will pull to par...meaning that they will tend to drift closer to the par value as maturity approaches.