Yield Comparisons in the Market

Treasury price quotes are in ticks, or thirty-seconds of a price point. A half tick is denoted by a plus sign. On May 10, 1994, the 10.25 percent Treasury bond maturing July 21, 1995, was quoted at 104—28+—in other words, an investor would pay 104.28625 for every 100 in face value. It pays coupons on January 21 and July 21. On May 11, 1994, the settlement date, it will have accrued 109 days of interest, for a total of 10.25 X 109/365 X 0.5, or 1.53048 for every 100 of face value. The dirty price of the bond on this date is thus 104—28+ 1.53048, or 106.421105. 

The remaining bond cash flows are 5,125, on both July 21, 1994, and January 21, 1995, and 105.25, onJuly21, 1995. January 21, 1995, however, is a Saturday, so the cash flow will not actually be received until Monday, January 23. The number of days between the value date. May 11, 1994, and the receipt of each cash flow is July 21,1994 71 days 

The interest periods between each cash flow date and the value date number are 

Plugging the derived values for price, accrued interest, cash flows, and interest periods into (17.4) gives 

The conventional yield—the one usually quoted—is almost invariably different from the true yield. This is because the conventional calculation derives the number of interest periods between the value date and the cash flows based on exact half-year intervals between payments, ignoring the delays that occur when the payment dates fall on nonbusiness days. 

---