Step Bond Bifurcation Methods and Yields Example
- Nancy Cohn (Deactivated)
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 |
|---|---|
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: | ||
|---|---|---|
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.
The following figure reflects the Step Bond Utilize Bifurcation Method option 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.
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