About the Coupon and Coupon Type Code Fields

This page describes two coupon period fields, the Coupon field and the Coupon Type Code field, that you can use when you set up fixed income securities for use with Eagle Accounting. 

Coupon

Coupon (tag 70). Specifies the rate at which the security accrues interest. It is expressed as an accrual rate. A value of zero is required for zero coupon bonds.

Eagle Accounting uses the rate in the Coupon field in the earnings process for securities with a Fixed coupon type. For securities with a Variable Rate, Unscheduled Variable Rate, Step Coupon, Floating Rate, and Inverse Floating Rate Coupon types, the system does not use this field in the earnings process; it uses it for reference and reporting only.

If the value of this field changes after a position exists, provided the Coupon Type is Fixed, the change affect the current and future coupon periods' earnings. Prior coupon periods' earnings are not affected by a change to this field, unless earnings are rolled backed to that period and then rolled forward, or a trade is backdated for a previous coupon period and thus, when earnings roll forward, they pick up the new value when the earnings process runs.

Coupon Type Code 

Coupon Type Code (tag 97). Indicates the type of coupon that is associated with the security. The options include Floating Rate (X), Inverse Floating Rate (R), Variable Rate (I), Step Coupon (S), Fixed Rate (F), and Unscheduled Variable Rate (V). This field is required. When Coupon Type is set to X, I, S, F, R, or V, the Coupon field in the SMF (tag 70) is for reference only, because the system does no processing on tag 70.

Options include:

• Floating Rate (X). The security has fixed coupon dates, and uses a variable rate that is based on an underlying index and index offset to calculate the coupon to use for earnings. You must enter the rate in the Variable Rate table.
  
  After you select Floating Rate, the following fields become visible: Underlying Issue Name (tag 1141), Underlying Asset ID (tag 1348), Index Offset (tag 215), First Rate Reset Date (tag 10911), Reset Frequency code. In the Underlying Issue Name (tag 1141) and Underlying Asset ID (tag 1348) fields, populate the index on which the security calculates the coupon rate. Then populate the rates for the index in the Variable Rate table that is associated with the Primary Asset ID of the Underlying Index. The Index Offset is the field where you input the basis point adjustment for the calculation of the coupon. The formula for calculating the coupon rate of a floating rate security follows:

• Inverse Floating Rate (R). The security has fixed coupon dates, and uses a variable rate whose coupon rate is calculated inversely to the underlying index that is attached to it. You must enter the rate in the Variable Rate table.
  
  When you select Inverse Floater, the following fields become visible and required: Inverse Floater Rate (tag 1553), Inverse Floater Multiple (tag 4532), Underlying Issue Name (tag 1141), Underlying Asset ID (tag 1348), and Index Offset (tag 215). You populate the rates for the index in the Variable Rate table that is associated with the Primary Asset ID of the Underlying Index. The formula for calculating a coupon rate for a security that has Inverse Floater Coupon Type follows.

• Variable Rate (I). The security has fixed coupon dates, and uses a variable rate based on the security identifier to calculate the coupon for use in earnings. For securities with a Variable Rate Coupon Type, you enter the coupon rates in the Variable Rate panel, and enter rates based on the variable rate security's Primary Asset ID.
  
  For Variable Rates, when you select a Coupon Type of Variable Rate, the system then only uses the Coupon Rate field (tag 70) on the SMF for reporting, and does no processing with that field.

• Step (S). The security has fixed coupon dates, and uses a variable rate based on the security identifier to calculate the coupon for use in earnings. The Step Coupon Type Code assumes that all the coupon rates are known at the time of issue. For securities with a Step Coupon Type, you enter the coupon rates in the Variable Rate panel, and enter rates based on the variable rate security's Primary Asset ID.
  
  When you use the Step Coupon Type, the system then only uses the Coupon Rate field (tag 70) on the SMF for reporting, and it does no processing with that field.
  
  For the Step Coupon Type, in the Amortization & Accretion Rules panel, Eagle Accounting provides the ability to recognize all future coupon rates that apply to the calculation of future cash flows for amortization yield, or to only recognize the most current coupon rate that applies to the calculation of future cash flows for amortization yield. The Step Bond Utilize Bifurcation Method field drives this processing in the Amortization Rule panel. 

• Fixed Rate (F). The security has fixed coupon dates, and has a fixed coupon rate to calculate the coupon for use in earnings. Eagle Accounting calculates earnings based on the value entered in the Coupon field (tag 70).

• Unscheduled Variable Rate (V). You can use an unscheduled variable rate coupon type when the coupon schedule of a bond cannot be calculated based on fields that derive the payment frequency. When you encounter a security such as this, you need to set up the security as an unscheduled variable rate. Eagle Accounting drops a coupon record for each value in the variable rate that has the Cash Movement Flag (tag 3449) set to Yes. When you use an Unscheduled Variable Rate:

  • The system then only uses the Coupon Rate field (tag 70) on the SMF for reporting and does no processing with that field.

  • The Interest Payment Frequency (tag 1523), Business Day Convention, and Day of Month Override (tag 1533) tags become available for reporting purposes only, because Eagle Accounting drives all coupon information off of the data in the Variable Rate table.

  • The system uses the Payment Frequency (tag 2287) and Payment Frequency Code (tag 472) for the periodicity for calculating the amortization and trade yield.

The following table compares the coupon types. 

The following table compares coupon types on several criteria.