A bond year is a year period in the life of a bond, set by the issuer or determined automatically on the anniversary of the issue date if the issuer does not specify. For example, a company could issue bonds on 5 July and declare that the first bond year ends on 30 June of the following year, for convenience. If it is a five year bond, the bond would mature on the 30th day of June five years after the initial issue. Issuers could also choose not to set a specific bond year, in which case the bond in the example would mature on 5 July five years later.
Setting the bond year can be important for making calculations related to the bond, as well as for investors who want to know when their bonds will mature. Issuers can adjust the bond year slightly to make the beginning or ending years short or long to make them fit into an issue schedule. On the documentation associated with a bond issue, the bond year will be clearly specified along with the other terms, so investors know what to expect.
Some bonds come with standardized bond year settings because they are released on a set schedule. The United States Treasury uses bonds to finance government activities and offers a predictable schedule of bonds with stable accompanying terms and conditions. Investors know the terms associated with future bond issues, because they should correlate with those of older bond issues. The Treasury offers up periodic batches of varying sizes to large financial institutions that can resell them on the secondary market.
This number can also be important for the calculation of bond years, a term that looks the same, but refers to a slightly different topic. Bond years are an arbitrary unit of $1,000 United States Dollars (USD) worth of debt over the course of a year. Knowing the bond year, size of the issue, and interest can allow investors to calculate the number of bond years in an issue. It can be important to contextualize a debt obligation by looking at the number of bond years it contains, not just the overall details of the issue.
To calculate the bond years in an issue, it is necessary to use a simple mathematical formula. An investor can divide the number of months in the maturity period by 12, and multiply this by the face value of the bond divided by 1,000. For example, if a bond has a 13 month maturity period and a face value of $2,000 USD, it would have 2.16 bond years.
