Step Bond Bifurcation Methods and Yields Example

The following example shows how the Step Bond Utilize Bifurcation Method option you select for an amortization/accretion rule affects step bond yields.

Sample Trade Details

Issue Date

1/1/2005

Maturity Date

1/1/2035

Trade Date

6/3/2013

Settle Date

6/3/2013

Purchase Price

90

Sample Variable Rates

Effective Date

Current Variable Rate

Effective Date

Current Variable Rate

2005-01-01

0

2020-01-01

30

Sample Yields

The following table compares step bond yields based on the Bifurcation Method selected.



Yield When You Set Step Bond Utilize Bifurcation Method Field to:



Yield When You Set Step Bond Utilize Bifurcation Method Field to:

Earned Thru Date

Bifurcation

No Bifurcation Par Restricted OR No Bifurcation Transcend Par

7/1/2013

0.4888790%

13.1968716%

1/1/2014

0.4888790%

13.1968716%

7/1/2014

0.4888790%

13.1968716%

1/1/2015

0.4888790%

13.1968716%

7/1/2015

0.4888790%

13.1968716%

1/1/2016

0.4888790%

13.1968716%

7/1/2016

0.4888790%

13.1968716%

1/1/2017

0.4888790%

13.1968716%

7/1/2017

0.4888790%

13.1968716%

1/1/2018

0.4888790%

13.1968716%

7/1/2018

0.4888790%

13.1968716%

1/1/2019

0.4888790%

13.1968716%

7/1/2019

0.4888790%

13.1968716%

1/1/2020

32.3075336%

13.1968716%

7/1/2020

32.3075336%

13.1968716%

1/1/2021

32.3075336%

13.1968716%

7/1/2021

32.3075336%

13.1968716%

1/1/2022

32.3075336%

13.1968716%

7/1/2022

32.3075336%

13.1968716%

1/1/2023

32.3075336%

13.1968716%

7/1/2023

32.3075336%

13.1968716%

1/1/2024

32.3075336%

13.1968716%

7/1/2024

32.3075336%

13.1968716%

1/1/2025

32.3075336%

13.1968716%

7/1/2025

32.3075336%

13.1968716%

1/1/2026

32.3075336%

13.1968716%

7/1/2026

32.3075336%

13.1968716%

1/1/2027

32.3075336%

13.1968716%

7/1/2027

32.3075336%

13.1968716%

1/1/2028

32.3075336%

13.1968716%

7/1/2028

32.3075336%

13.1968716%

1/1/2029

32.3075336%

13.1968716%

7/1/2029

32.3075336%

13.1968716%

1/1/2030

32.3075336%

13.1968716%

7/1/2030

32.3075336%

13.1968716%

1/1/2031

32.3075336%

13.1968716%

7/1/2031

32.3075336%

13.1968716%

1/1/2032

32.3075336%

13.1968716%

7/1/2032

32.3075336%

13.1968716%

1/1/2033

32.3075336%

13.1968716%

7/1/2033

32.3075336%

13.1968716%

1/1/2034

32.3075336%

13.1968716%

7/1/2034

32.3075336%

13.1968716%

12/31/2034

32.3075336%

13.1968716%


As the previous table indicates, if you set the Step Bond Utilize Bifurcation Method option to No Bifurcation Par Restricted or No Bifurcation Transcend Par, Eagle Accounting recognizes all the future cash flows at the time of the trade, and thus Eagle Accounting calculates the same yield throughout the life of the security. By recognizing all the future cash flows in the calculation of amortization yield, Eagle Accounting recognizes more amortization income in the earlier part of the bond's life (the security accrues interest at lower coupon rates up until 1/1/2020). Recognizing more amortization in the earlier part of the bond's life allows you to recognize a smoother stream of total income over the life of the security. As the rates increase, the bond recognizes less amortization. The following figures illustrate this.

The following figure reflects the Step Bond Utilize Bifurcation Method option set to Bifurcation.

The following figure reflects the Step Bond Utilize Bifurcation Method option set to No Bifurcation Par Restricted.

Step Bond Utilize Bifurcation Method set to No Bifurcation Par Restricted

The following figure reflects the Step Bond Utilize Bifurcation Method option set to No Bifurcation Transcend Par.

Step Bond Utilize Bifurcation Method Field set to No Bifurcation Transcend Par

For OID securities, the OID and market streams are treated independently. Under the No Bifurcation Par Restricted election, Par for OID is considered 100, and Par for the market stream is the adjusted issue price.