How Fixed-Equivalent Yield Recasts a Floater as a Fixed-Rate Bond

Summary

The document explains Bloomberg's fixed-equivalent yield for a floating-rate bond. The method first treats the bond's floating coupon payments as if they were exchanged for synthetic fixed payments at a rate available in the swap market. It then calculates the internal rate of return for a hypothetical fixed-coupon bond, retaining the floater's maturity and price.

This measure expresses a floater's economics in fixed-rate terms, making the yield concept easier to compare with a conventional fixed-rate bond. The explanation is a short conceptual answer and gives no calculation example, market conventions, or details about how Bloomberg handles specific reset schedules, curves, or other instrument features. Its stated procedure should therefore be read as a general description rather than a complete pricing specification.

Key ideas

• The fixed-equivalent yield starts by replacing floating coupons with a synthetic fixed rate from a swap.
• The hypothetical bond keeps the floater's price and maturity.
• The yield is the internal rate of return implied by that fixed-coupon cash flow stream.
• The document gives a conceptual description without calculation details or Bloomberg-specific conventions.

Tags

# How is Bloomberg's fixed-equivalent yield on a floater calculated?


# How is Bloomberg's fixed-equivalent yield on a floater calculated?












What is fixed-equivalent yield and how is it derived? Thanks!

## Answer by nbbo2 (score 2)

https://quant.stackexchange.com/a/35959

Quote [fixed equivalent] yield is determined by assuming the coupon rate on the floater is swapped to a synthetic fixed rate and then solving for the internal rate of return. Endquote link

In other words it is based on seeing what kind of fixed rate you can get in the swap market for the floating rate payments from the bond, then seeing what Yield to Maturity you get on a bond with such (hypothetical) fixed coupons, the other facts about the floating bond (maturity and price) remaining unchanged.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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