A (very) simplified bond-pricing equation goes thus:

Fair_Price:
{Face_Value * (1 + Interest - Expected_Market_Return) ^ (Years_To_Maturity)}

• P(Company_Will_Default_Before_Maturity)

To reiterate, that is a very simplified model. But it allows us to demonstrate the 3 key factors that drive "Fair" Value:

1. The interest relative to the current market rate. If your AAA bond yields 1%, but an equally-good AAA bond currently sells at 3% in the market, then the "Equivalent" value is the face value minus 2% (1% - 3%) for every year to maturity.

2. Years to maturity. Because 1) is multiplied for every year to maturity, longer-dated bonds are more sensitive to changes in market rates. If your bond yields 2% less than market but matures in a year, then it's worth $98, but if it matures in 56 years, then it's only worth 0.98^56 = $32. Conversely, if your bond yields more than the market rate, then its' price will be greater than face value.

3. The company might default on the debt. If a Bond has a "Fair" Value of $100, but you think there's a 50% chance that the company will default, then it's only worth $50. In fact, it's worth even less because getting paid on a defaulted bond often takes time and money and lawyers.

In your case, because your bond matures in 56 years but yields ~5% (well above the current market rate), for it to be below Face value implies a strong probability of default, or a strong belief that market returns will be above 5% over the next 56 years.

A (very) simplified bond-pricing equation goes thus:

Fair_Price:
{Face_Value * (1 + Interest - Expected_Market_Return) ^ (Years_To_Maturity)}

• P(Company_Will_Default_Before_Maturity)

To reiterate, that is a very simplified model. But it allows us to demonstrate the 3 key factors that drive "Fair" Value:

1. The interest relative to the current market rate. If your AAA bond yields 1%, but an equally-good AAA bond currently sells at 3% in the market, then the "Equivalent" value is the face value minus 2% (1% - 3%) for every year to maturity.

2. Years to maturity. Because 1) is multiplied for every year to maturity, longer-dated bonds are more sensitive to changes in market rates. If your bond yields 2% less than market but matures in a year, then it's worth $98, but if it matures in 56 years, then it's only worth 0.98^56 = $32. Conversely, if your bond yields more than the market rate, then its' price will be greater than face value.

3. The company might default on the debt. If a Bond has a "Fair" Value of $100, but you think there's a 50% chance that the company will default, then it's only worth $50. In fact, it can be worth even less because getting paid on a defaulted bond can often take time and/or money and/or lawyers.

In your case, because your bond matures in 56 years but yields ~5% (well above the current market rate), for it to be below Face value implies a strong probability of default, or a strong belief that market returns will be above 5% over the next 56 years.

A (very) simplified bond-pricing equation goes thus:

Fair_Price:
{Face_Value * (1 + Interest - Expected_Market_Return) ^ (Years_To_Maturity)}

• P(Company_Will_Default_Before_Maturity)

To reiterate, that is a very simplified model. But it allows us to demonstrate the 3 key factors that drive "Fair" Value:

1) The interest relative to the current market rate. If your AAA bond yields 1%, but an equally-good AAA bond currently sells at 3% in the market, then the "Equivalent" value is the face value minus 2% (1% - 3%) for every year to maturity.

2) Years to maturity. Because 1) is multiplied for every year to maturity, longer-dated bonds are more sensitive to changes in market rates. If your bond yields 2% less than market but matures in a year, then it's worth $98, but if it matures in 56 years, then it's only worth 0.98^56 = $32. Conversely, if your bond yields more than the market rate, then its' price will be greater than face value.

3) The company might default on the debt. If a Bond has a "Fair" Value of $100, but you think there's a 50% chance that the company will default, then it's only worth $50. In fact, it's worth even less because getting paid on a defaulted bond often takes time and money and lawyers.

In your case, because your bond matures in 56 years but yields ~5% (well above the current market rate), for it to be below Face value implies a strong probability of default, or a strong belief that market returns will be above 5% over the next 56 years.

A (very) simplified bond-pricing equation goes thus:

Fair_Price:
{Face_Value * (1 + Interest - Expected_Market_Return) ^ (Years_To_Maturity)}

• P(Company_Will_Default_Before_Maturity)

To reiterate, that is a very simplified model. But it allows us to demonstrate the 3 key factors that drive "Fair" Value:

1. The interest relative to the current market rate. If your AAA bond yields 1%, but an equally-good AAA bond currently sells at 3% in the market, then the "Equivalent" value is the face value minus 2% (1% - 3%) for every year to maturity.

2. Years to maturity. Because 1) is multiplied for every year to maturity, longer-dated bonds are more sensitive to changes in market rates. If your bond yields 2% less than market but matures in a year, then it's worth $98, but if it matures in 56 years, then it's only worth 0.98^56 = $32. Conversely, if your bond yields more than the market rate, then its' price will be greater than face value.

3. The company might default on the debt. If a Bond has a "Fair" Value of $100, but you think there's a 50% chance that the company will default, then it's only worth $50. In fact, it's worth even less because getting paid on a defaulted bond often takes time and money and lawyers.

In your case, because your bond matures in 56 years but yields ~5% (well above the current market rate), for it to be below Face value implies a strong probability of default, or a strong belief that market returns will be above 5% over the next 56 years.