Yellow Sheets: What They are, How They Work

What is Yellow Sheets?

Yellow Sheets are daily publications or electronic quotation systems that provide bid and ask prices, yields, and other essential data for over-the-counter (OTC) corporate bonds and taxable fixed-income securities not listed on major exchanges. They serve as a primary source of pricing information for OTC bond trading, complementing other market data sources like the Yankee Market.

Originally printed on yellow paper by the National Quotation Bureau, Yellow Sheets now offer real-time electronic access, enhancing transparency for fixed-income securities outside traditional exchanges.

Key Characteristics

Yellow Sheets consolidate vital bond market data in a user-friendly format. Key features include:

• Focus on OTC Bonds: Provide quotes for corporate, convertible, and high-yield bonds not listed on exchanges.
• Bid and Ask Prices: Display real-time or daily bid/ask spreads from market makers.
• Yield and Volume Data: Include yields, maturity dates, and trading volumes to guide investment decisions.
• Market Maker Information: Identify broker-dealers facilitating bond transactions.
• Complementary to Other Markets: Unlike the Baby Bond market or exchange-listed securities, Yellow Sheets specialize in OTC fixed income.

How It Works

Yellow Sheets compile quotes from multiple broker-dealers and market makers, distributing this data electronically or via periodic print editions. Investors and traders use these prices to evaluate liquidity and negotiate trades in OTC bonds that lack centralized exchange listings.

When you check Yellow Sheets, you see various bids and asks, allowing you to identify the best price spreads before contacting a market maker to execute a trade. This process improves price discovery and supports efficient secondary market transactions for bonds with no public exchange presence.

Examples and Use Cases

Yellow Sheets are invaluable for fixed-income investors and wealth managers seeking data on OTC bonds. Common examples include:

• Airlines: Companies like Delta issue bonds traded OTC, where Yellow Sheets help track their yields and pricing.
• Bond ETFs: Investors analyzing bond ETFs such as BND benefit from Yellow Sheets data to assess underlying bond valuations.
• Callable Bonds: Investors researching callable bonds can use Yellow Sheets to monitor price fluctuations and yield changes in the OTC market.

Important Considerations

While Yellow Sheets enhance transparency in OTC bond markets, they primarily focus on fixed-income securities and exclude exchange-listed equities. Access to real-time electronic data may require subscriptions through brokerage platforms.

Also, Yellow Sheets do not provide comprehensive company financials or management details, so complement your research with other sources. For broader fixed-income investment strategies, consider exploring our guide on best bond ETFs.