The Discount Yield and Bond Equivalent Yield are two different methods for calculating and expressing the yield on fixed-income securities. The yield used for Treasury Bond quotes in Bangladesh is the Discount Yield. Here is a comparison of these two yield measures:
1.
Discount Yield:
Calculation: The discount yield is calculated based on the discount between the purchase price of the security and its face value, expressed as a percentage of face value.
Formula: Discount Yield = (Discount/Face Value)*(360/Days of Maturity)
Interpretation: The discount yield represents the annualized yield on a Treasury Bond, assuming the investor holds the bond until maturity and does not receive any periodic coupon payments. It reflects the percentage return earned on the investment.
2. Bond
Equivalent Yield:
Calculation: The bond equivalent yield is calculated by doubling the semi-annual yield of a bond
Formula: Bond Equivalent Yield = Semi-annual Yield*2
Interpretation: The bond equivalent is an annualized yield that considers the semi-annual coupon payments of a bond. It allows for easier comparison of yields between bonds with different payment frequencies.
For Treasury Bond quotes in Bangladesh, the Discount
Yield is commonly used. The quoted yield represents the annualized discount
yield, providing investors with a measure of the expected return on the
Treasury Bond. This yield calculation is widely used for fixed-income
securities, including government bonds, and allows for standardized pricing and
comparison among different bond offerings.
It’s important to note that the specific market
conventions and practices may vary between countries and markets. While the
Discount Yield is generally used for Treasury Bond quotes in Bangladesh, it is
always recommended to refer to the relevant guidelines, market practices, and
official sources to ensure accurate and up-to-date information regarding Treasury
Bond quotes and yield calculations in Bangladesh.