• Variable Rate Source (3301): ensure this reflects the source under which your underlying CPI values are loaded 

• ILB Gain/Loss Flag (3856): specifies whether inflation accruals are booked to income (Both Income) or gain/loss (Maturity Gain/Loss and Daily Income) at maturity; interest accruals that are always booked to income

• No Negative Income (3857): provides the option to disallow negative income for identified cost portfolios (Do Not Allow Negative Income); applies to all securities, not just ILBs

• ILB Valuation Method (18047, V17): specifies whether ILB valuations are calculated using next-day or same-days index ratios (this does not apply to accrued interest, which is always calculated using next-day index ratios)

  • System Default (T+1): produces the same results as all recent modern versions of Eagle Accounting by using next-day index ratios

  • T+0: produces valuations that match Bloomberg by using same-day index ratios

There is an additional field in the amortization/accretion rule setup that may need to be considered as well. Min ILB Ratio Flag (3855) specifies if Accounting will use the security-level value in ILB Min Index Ratio (3854) to define the lowest index ratio to which amortization will be calculated for the purposes of realizing gain/loss at maturity. The default value is No, allowing gain/loss to be calculated down to any index ratio. It must be changed to Yes to enforce a minimum. This is discussed further in the Security Data section.

Reference Data

Storage & Configuration

Eagle models ILB security master files (SMFs) as single rows in Data Management. Because all ILBs of a given calculation type use common CPI data, each underlying CPI only needs to be set up once, and all the ILBs pointing to that index will pull in the appropriate CPI values automatically.

Market Data

Each CPI must be set up as an index security (Processing Security Type = INXXXX) using Issue Viewer or Reference Data Center (RDC). The published CPI levels are loaded to each index as variable rates, and Accounting calculates daily index ratios based on the calculation type and base CPI value. The process for populating CPIs is outlined below.

Populating Underlying Inflation Index

The underlying CPI must be populated with periodic values based on the type of ILB being modeled. For example: United States and Canadian ILBs use monthly CPI values, while the Australian CPI values are published quarterly.

• Each CPI value should be loaded to the month that it is published, and Accounting will do the appropriate look-back based on the calculation type

  • Iceland ILBs are an exception; their CPI values are published on the last day of each month and should be loaded to the first day of the following month (the CPI value for 6/30/14 in Bloomberg should be loaded with an Effective Date of 7/1/14 in Accounting)

• CPI values must be loaded for the 1st of the month, except:

  • Japan where they must be loaded for the 10th (this is industry standard per https://www.mof.go.jp/english/policy/jgbs/topics/bond/10year_inflation/coefficient.htm)

  • Australia & New Zealand where they must be loaded for last day of each quarter (3/31, 6/30, 9/30, and 12/31)

CPI values are stored in the VARIABLE_RATE table for the index security, and can be added using the Add Variable Rate panel or the Add Variable Rate function in RDC.

• Query for the appropriate CPI security, enter Effective Date (1109) as the 1st of the month (or the 10th for Japan), and populate Variable Rate (96) with the CPI value

  • Confirm Source Name (3301) matches Variable Rate Source as defined on the entity; if the sources do not match, Accounting will error out saying that ILB index ratios could not be calculated due to missing underlying information

• CPI values must be loaded starting N months prior to dated date for new ILBs, or N months prior to settlement date of a trade; N = # of months of index lag based on the calculation type

• Keeping CPI values up-to-date is required for booking trades and processing accruals

• RATIOS: if the security-level ILB Calculation Type (11808, discussed in the following section) is set to RATIOS, index ratios must be entered for every day (including weekends) following the same process described above

  • Ratios can be loaded for future dates and should be entered in batches as they become available

Security Data

CPI Security

Index SMFs can be set up and maintained using Issue Viewer, SRM, or RDC. Identifying information, Processing Security Type (3931) set to INXXXX, and Asset Currency (85) set to the same value as the ILB are the only fields required to create a CPI index security.

Inflation-Linked Bond

ILBs can also be set up and maintained using Issue Viewer, SRM, or RDC. Most fields are the same as other fixed income securities, but those specific to ILBs are highlighted below.

• Underlying Security (1347): populate with identifying information of the appropriate CPI index

• Dated Date CPI (1550): reference CPI value on dated date

  • Available on the Bloomberg YA screen as "Base CPI Value" or <index name> @ "Base Date"

  • Each day the current reference CPI value will be divided by this number to generate an inflation adjustment (called ILB Index Ratio in Accounting)

  • For ILB Calculation Type = RATIOS, Dated Date CPI is defaulted to 1.00

• ILB Calculation Type (11808): select based on country of issue and series

  • This defines how Accounting will convert monthly/quarterly/etc. CPI values into daily index ratios for accruals and valuation

  • RATIOS allows Daily ILB Index Ratios to be loaded rather than being calculated by Accounting, providing extreme flexibility in modeling ILBs

    • Daily index ratios is the standard for some countries, but they can also be computed offline and loaded for any flavor of ILB not natively supported

• ILB Index Precision (11017): number of decimal places to which the ILB index ratios will be calculated (Eagle Accounting supports up to 12)

• ILB Deflation Protected Maturity (11809): defines if the initial principal investment is protected at the time of maturity

  • Yes: the principal payment at maturity will never be less than par

  • No: the principal payment can be less than par if the CPI has fallen since the bond was issued

• ILB Min Index Ratio (3854): defines the lowest index ratio to which amortization will be calculated for the purposes of realizing gain/loss at maturity

  • This only applies when the entity-level Min ILB Ratio Flag = Yes

  • The default value is 1.00, which will only allow gain/loss to be calculated down to original par value (typical setup)

  • A value less than 1.00 will allow gain/loss to be calculated down to the full deflation-adjusted par value

Country Support

US, Canada, UK post-2005, France, Italy, Greece, Poland, Turkey, Germany

Monthly CPI values, 3-month index lag (CPI used by Accounting for today’s processing is taken from three months prior), calculation of daily ILB Index Ratios based on the ACT/ACT or CAD/365 (CA) day count. A Polish ILB example is attached () proving out Eagle’s market value and accrued interest against Bloomberg. For information on supporting the rebase of the France Consumer Price Index: Excluding Tobacco (FRCPXTOB Index) that occurred in March 2016 refer to Inflation-Linked Bond Rebasing - France Processing Notes.

• ILB Calculation Type = ACT_3M

• ILB Index Precision = 5 (United States, Canada, United Kingdom post-2005, France, Italy, Greece)

• ILB Deflation Protected Maturity

  • Yes: United States, France, Italy, Greece

  • No: Canada, United Kingdom post-2005

Sweden

Monthly CPI values, 3-month index lag, calculation of daily ILB Index Ratios based on the 30E/360 day count (2/28 and 2/29 are not treated as 2/30).

• ILB Calculation Type = 30E_3M

• ILB Index Precision = 6

• ILB Deflation Protected Maturity

  • Yes: 1999 issue and later

  • No: issuances prior to 1999

Iceland

Monthly CPI values, 1-month index lag, calculation of daily ILB Index Ratios based on the 30E/360 day count (ratios change between the 29^th and 30^th, not between the 30^th and 31^st).

• ILB Calculation Type = 30_1M

  • CPI values published for the last day of the month must entered for the 1^st day of the following month

• ILB Index Precision = 6

• ILB Deflation Protected Maturity = No

Japan

Monthly CPI values, 1-month index lag, calculation of daily ILB Index Ratios based on the JPY/365 day count.

• ILB Calculation Type = ACT_3J

  • CPI values must be entered for the 10^th of each month rather than the 1^st

• ILB Index Precision = 3

• ILB Deflation Protected Maturity

  • Yes: October 2013 issue (series 17) and later

  • No: up to 2008 issuance (series 1-16)

South Africa

Monthly CPI values, 4-month index lag, calculation of daily ILB Index Ratios based on the ACT/365 day count.

• ILB Calculation Type = ACT_4M

• ILB Index Precision = 9

• ILB Deflation Protected Maturity = Yes

New Zealand (Actual)

Quarterly CPI values, 6-month index lag, calculation of quarterly ILB Index Ratios (instead of daily) based on the ACT/ACT day count. New Zealand ILBs have a single index ratio for each quarterly coupon period, therefore all inflationary income is recognized on the first day of each coupon period. The index ratio can be greater or less than 1.00, and the maturity payment is based on the actual change in CPI values over the life of the bond.

• ILB Calculation Type = IDX_6M

  • In V12.1.X, V13.1.2.6, 2015 R1, and above, CPI values must be loaded for last day of each quarter (3/31, 6/30, 9/30, and 12/31)

• ILB Index Precision = 4

• ILB Deflation Protected Maturity = No

Australia (Actual)

Quarterly CPI values, 6-month index lag, calculation of quarterly ILB Index Ratios (instead of daily) based on the ACT/ACT day count. Australia ILBs have a single ILB Index Ratio for each quarterly coupon period, thus all inflationary income is recognized on the first day of each coupon period. The ILB Index Ratio cannot be less than one, and the maturity payment is based on the actual change in inflation (CPI values) over the life of the bond. For information on supporting the rebase of the Headline CPI (AUCPI index) that occurred on 10/24/12 refer to Inflation-Linked Bond Rebasing - Australia Processing Notes.

• ILB Calculation Type = IDX_GT1_6M

  • In V12.1.X, V13.1.2.6, 2015 R1, and above, CPI values must be loaded for last day of each quarter (3/31, 6/30, 9/30, and 12/31)

• ILB Index Precision = 4

• ILB Deflation Protected Maturity = Yes

UK pre-2005

Monthly CPI values, 8-month index lag, calculation of a single ILB Index Ratio (instead of daily) for each coupon period based on the ACT/ACT day count. For detailed calculation information, refer to United Kingdom Index ILB - Calculation Pre-2005 Method.

• ILB Calculation Type = NONE_8M

• ILB Index Precision: 2, 4, or 6 depending on issue

• ILB Deflation Protected Maturity = No

User Provided

Mexico

Daily inflation ratios are published for the underlying index, which can be loaded without any offset or interpolation.

• ILB Calculation Type = RATIOS

• ILB Index Precision = 6

• ILB Deflation Protected Maturity = No

Argentina

• ILB Calculation Type = RATIOS

• ILB Index Precision = 9

• ILB Deflation Protected Maturity = No

Brazil

• Day Count Basis (471) = BUS/252

• ILB Calculation Type = RATIOS

  • The daily index ratios vary between different Brazilian ILB issues (NTN-B vs. NTN-C), but are shared across all securities within each issue (all NTN-B securities share the same ratios)

  • The ratios must be sourced from a vendor or calculated offline from the published CPI values as shown in

• ILB Index Precision = 9

• ILB Deflation Protected Maturity = No

Chile

Can be valued in either CLP (Pesos) or CLF (Unidad de Fomento).

• CLP

  • ILB Calculation Type = RATIOS

  • ILB Index Precision = 6

  • ILB Deflation Protected Maturity = No

• CLF

  • These ILBs are priced inclusive of inflation and therefore should be modeled as standard long-term debt (Processing Security Type = DBIBFD) to avoid double-counting inflation

Colombia

These ILBs use the NL/365 day count, pay annually, and require daily ratios to be loaded.

• ILB Calculation Type = RATIOS

• ILB Index Precision = 6

• ILB Deflation Protected Maturity = No

Israel

Daily inflation ratios are published for the underlying index, which can be loaded without any offset or interpolation.

• ILB Calculation Type = RATIOS

Uruguay

Daily ratios are published, but unlike Mexican and Israeli ILBs that all have the same base year and value (1.00), Uruguayan ILBs have different base values depending on their dated dates.

• ILB Calculation Type = RATIOS

• Daily ratios must be calculated offline for each Uruguayan ILB by dividing the published daily values by the base value, then loaded to a unique index for each bond

• A future Accounting enhancement has been discussed to allow a base value other than 1.00 when using RATIOS, which would allow a single index to be used for all Uruguayan ILBs, but this is not currently scheduled for development

Trade Processing

Open (event type = BUY or SHORTSELL)

Trades are entered using the Book Trade module once entity and reference data have been configured. Enter the appropriate entity, security identifier, and trade (35)/settle (37) dates and click Submit to query for the security. Right-click it and select Open > Buy or ShortSell. The list below contains all fields required to book an ILB trade.

• Par Value (40): original par value of the trade (not including any inflation adjustments)

• ILB Index Ratio (4483): calculated automatically using index values loaded to the underlying inflation index and the Dated Date CPI (base index value)

• Current ILB Quantity (965): inflation-adjusted par value (calculated automatically as Par Value * ILB Index Ratio)

• Price per $100 of Par Value (45): clean unit price, exclusive of accrued interest and inflation

• Principal (165): cost associated with the trade (calculated automatically as Current ILB Quantity * Price per $100 of Par Value * Price Multiplier * Quantity Scale

  • Price Multiplier (18) and Quantity Scale (19) are typically 0.01 and 1.00 respectively

• Traded Interest (49): the accrued interest bought (or sold) on the trade

  • Can be automatically calculated based on Current ILB Quantity and the bond’s accrual terms

  • To enter this data from a trading system, choose an option without Traded Interest under Select Values to be calculated by STAR (7000)

• Local (50)/Settlement Net Amount (64): the amount of cash that will be moved in local currency terms

• Base Net Amount (478): the amount of cash that will be moved in base currency terms

  • This is calculated using the Local to Base FX Rate (87) that is automatically pulled into the panel

• Broker (88)

Close (event type = SELL or BUYCVR)

The Book Trade module should also be used to process both full and partial closes. Enter the same identifiers as the open to query for the security. Right-click it and select Close > Sell or BuytoCover depending on whether the existing position is long or short. All fields on the close are the same as the open, except Lot Selection Method (27). This defaults to the entity-level value, but can be overridden.

• An ILB Index Ratio is automatically calculated using underlying CPI values, the ratio is used to adjust par value, and the inflation-adjusted traded interest can be calculated

• Gain or loss is realized based on the difference between close price and open price

Cancel & Rebook

Faulty ILB transactions can be cancelled and rebooked using the Cancel & Rebook Trade module, which will also replay the full lifecycle of the position. Alternatively, trades can be cancelled using Cancel Trade, with the transaction rebooked using the Book Trade module.

Accounting

Once an ILB trade is booked, it will be picked up in Eagle’s global workflow. Inflation-adjusted daily accruals and periodic coupon payments are generated using underlying CPI values as part of the earnings process, Accounting valuation is calculated when posting unrealized gain/loss, and Data Management valuation is calculated in STAR to PACE. These can be scheduled or triggered manually.

• V17 & Above: Accounting Center > Processing and Exceptions > Global Processes

  • Accruals: Earnings > Run Income Accruals

  • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

  • Data Management Valuation: Eagle STAR to Eagle PACE Direct Processing > Transfer Data - Batch

• Prior to V17: Global Process Center

  • Accruals: Earnings > Accrue

  • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

  • Data Management Valuation: STAR to PACE Direct Processing > Transfer Data - Batch

Valuation

ILBs are valued using real clean prices, entered via Add Issue Price or Pricing Center.

• Market Value = Par Value * ILB Index Ratio * Price * Price Multiplier * Quantity Scale

  • Starting in V17, ILB Index Ratio can be next-day or same-day depending on the entity-level ILB Valuation Method election (refer to the Entity Setup section for details)

Real (excluding inflation) clean (excluding accrued interest) prices must be supplied to avoid double-counting either component during valuation.

Reporting

STAR to PACE (S2P)

Almost all reports in Eagle leverage data from Data Management, which is populated by the S2P process. This will be scheduled as part of the daily workflow, but can also be triggered manually as described in the Accounting section.

The S2P process creates a single row for each ILB in the POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables. The MARKET_VALUE_INCOME column captures the total market value, inclusive of price fluctuations and period-to-date accruals payable or receivable.

Accounting Reports

Eagle has a core set of accounting reports that can be used to review ILB information. These are designed to support the daily operational workflow for business users, allowing Grid Reports to be easily exported to Excel and customized to provide additional details as needed. Advanced Reports are intended to be client-facing and do not provide the same level of customization.

Data Management Reporting

Performance

The performance toolkit has full functionality to calculate market value-based performance for ILBs using data supplied by the S2P process. Risk and performance attribution features are available to analyze ILB performance.

Automation

ILB security master files (SMFs) and trades can be loaded through the standard Message Center streams. The SMF must be loaded prior to the trade (trades do not spawn SMFs). Refer to https://eagledocs.atlassian.net/wiki/spaces/GENERICINTER for more information.

Other Notes

If you are seeing variances in accruals or valuation equal to one day of inflation when reconciling to another system, please refer to our Inflation-Linked Bonds (ILB) Processing Notes for a detailed explanation.