A bond is a similar to a loan where the issuer of the bond is in effect borrowing money from an investor (the holder of the bond) which will be returned at maturity. Over the bond's lifetime the issuer will pay interest as defined in the bond specifics.
As the amount to be received at maturity and the coupon payment details are known, the present value (or the price) of the bond can be calculated.
Bonds are traded on an exchange. While an investor is guaranteed to receive interest and the principal, the underlying value of the bond itself may change depending on the direction of interest rates. As with all fixed-income securities, if interest rates in general rise, the value of the security will fall. Similarly, if interest rates fall, the value of an older, higher-paying bond will rise.
What is a government bond? Government bonds are bonds issued by a national government. They are usually considered the highest quality bonds in the market as they are backed by central governments. Governments issue bonds on known dates for different maturities.
Pricing a Bond in SDX Interest Rates
In both the pricing pages you can price government bonds. You enter a bond from the Option/Swap or Option dropdown list by selecting Government Bond or by simply entering the shortcut bond.
The following government bonds are currently supported:
US Treasuries (USD)
German Bunds (EUR)
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Germany.
French OATs (EUR)
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select France.
Italian Government Bonds (EUR)
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Italy.
Spanish Government Bonds (EUR)
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Spain.
Slovakia Government Bonds (EUR)
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Slovakia.
Austria
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Austria.
Belgium
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Belguim.
Finland
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Finland.
Greece
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Greece.
Ireland
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Ireland.
Netherlands
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Netherlands.
Portugal
To select this option in SDX Interest Rates from the Currency dropdown list you must first select EUR and then from the Country list you must select Potrugal.
UK Gilts (GBP)
Japanese Government Bonds (JPY)
Australian Government Bonds (AUD)
Canadian Government Bonds (CAD)
Brazilian Government Bonds (BRL)
Chile (CLP)
China (CNY)
Columbia (COP)
Czech Government Bonds (CZK)
Danish Government Bonds (DKK)
Hong Kong (HKD)
Hungary (HUF)
Indonesia (IDR)
India (INR)
Israeli Government Bonds (ILS)
Malaysia (MYR)
Mexican (MXN)
New Zealand Government Bonds (NZD)
Norwegian Government Bonds (NOK)
Philippines (PHP)
Romania (RON)
Russian Government Bonds (RUB)
Singapore (SGD)
South African Government Bonds (ZAR)
Swedish Government Bonds (SEK)
Switzerland (CHF)
Taiwan (TWD)
Thailand (THB)
Turkey (TRY)
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In SDX Interest Rates by default the “on the run” bond is displayed. However, if relevant you can select a different “old” bond from the CUSIP/ISIN dropdown list instead. A label is displayed next to each bond in the dropdown list so you can see if it is the “on the run” or “old” one. |
Currently in SDX Interest Rates you can price either of the following:
A fixed coupon bond, where the coupon (or fixed interest rate) remains constant throughout the life of the bond. That is, the issuer guarantees to pay the bond holder of the bond a fixed cash payment (i.e., the coupon) at a predefined frequency until the maturity date, at which point the holder receives the final coupon payment and the return of the principal.
The fixed coupon is the interest rate. The face amount is the amount the bond holder receives back on the maturity date.
The default tenor for a government bond is 10 years.
A discount security, which pays a fixed amount (also known as the face amount) at maturity, with no intervening interest payments. That is, it has zero coupons.
Usually short tenor government bonds are discounted securities.
The price the security is bought for is less than the face amount, with the return on investment being the difference between the price and the face amount.
Note that for USD Treasury bills the convention is to quote bills on a discount rate basis.
What Is Calculated for a Bond?
The following results are calculated in SDX Interest Rates:
Dirty price
This is what the bond holder pays on the trade settlement date. For some bonds, this is the way the price is quoted in the market.
Accrued interest
The accrued interest is the interest amount which has already been earned but not yet paid relative to the calculation date. That is, it is the fraction of the next coupon payment amount which has already been earned, and it depends on the number of days that have already passed in the current coupon period.
Clean price
This is the price without the accrued interest. For most bonds, this is the way the price is quoted in the market.
Yield to maturity
This is the actual rate of return on the bond if it is held until maturity. It is calculated by knowing the dirty price, the coupon information and the face amount.
It lets you compare this bond with bonds that have different maturities and coupons.
Modified duration
Modified duration measures the approximate change in bond price for a 1% change in interest rates assuming that the bond's expected cash flows do not change when the yield changes.
Convexity
This is a measure of how sensitive a bond is to changes in interest rates. It is the rate of change in the duration of a bond and shows how much a bond's yield changes in response to changes in price.