Hi,
I am in the equity space and do not have much exposure to bonds. However, this a compliance review I am conducting that involves bonds.
What is the story behind the fact that bonds are quoted in 1/32 increments or tics?
Thanks.
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this is a historical artifact...back before they had computers, prices were quoted in fractions...the stock market used to be this way also....but with electronic trading stocks went to decimals. bonds are just behind the times in that respect...however, now bonds trade in 1/8th of a 32nd...which = 1/(8*32) = 1/256th (and sometimes 1/16th of a 32nd which = 1/512th)
this will probably never change....but its not that big a deal anymore
Historically,
The early stockbrokers [who were trying to create the NYSE] looked to Europe for a model to build their system on and decided to base it on the system of Spain. This was largely due to the fact that the U.S. dollar's value had been based on the value of the Spanish real.
The real was the Spanish silver dollar and was divided into eight parts. This evolved from the method of counting on the hands, similar to the decimal system. The difference was that the decimal system used the thumbs as part of the number while this other system used the thumbs to denote the total of the four fingers. Therefore, a person would count to four on one hand and then use the thumb to indicate a total while they counted on the other hand. Two thumbs equaled eight. The real could be broken into two, four or eight parts, giving birth to the term pieces of eight.
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