Choosing Settlement Dates and Yield Functions for Treasury Bonds

Summary

The document addresses which date to enter when calculating a Treasury bond’s yield from its clean price, and whether auction prices use the same approach. The answer recommends using the settlement date rather than the trade date or the most recent coupon date. For a newly auctioned security, it identifies the issue date as the relevant date. The distinction matters because settlement can occur after the trade and determines the timing of the bond cash flows used in the yield calculation.

The response also favors Excel’s yield function over its rate function for coupon-bearing bonds. Its stated reason is that the rate function does not handle a settlement date falling within a coupon period. The note gives general guidance rather than a complete pricing specification: settlement and issue timing can vary, and the document does not detail the inputs or day-count and coupon conventions needed for every Treasury security or auction.

Key ideas

• Use the settlement date, rather than the trade date, for a bond yield calculation.
• For a newly auctioned security, the issue date serves as the relevant date in the answer.
• The response recommends Excel’s yield function for coupon bonds when settlement falls inside a coupon period.
• The note does not specify all bond conventions needed to reproduce every Treasury yield.

Tags

# yield/price of treasury bonds


# yield/price of treasury bonds












I tried to calculate treasury bonds YTM from their clean prices through different formula on excel ("yield" or "rate") and found the same result. However, I do not know whether using the "yield" function, it is more suitable to set the delivery date to the date of the trade or the last date of coupon given that using the date of the trade gives a different result than the "rate" function?

I have another question regarding the determination of yields on the basis of prices published at auctions. Is the same formula used?

## Answer by dm63 (score 1)

https://quant.stackexchange.com/a/28018

The correct date to use is the Settlement Date, which is one business day after the Trade Date, or in the case of a newly auctioned security, the Issue Date.

The Issue Date is typically between T+2 and T+1week for coupon bearing Treasuries. See the Treasury Direct website for examples.

The yield function is preferable to the rate function in exceL. From reading the descriptions, the latter won't work if the settlement date is in the middle of a coupon period.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.