Pricing a SONIA Floater to Estimate Its Yield

Summary

The document outlines a standard approach to estimating the yield of a floating-rate bond linked to compounded SONIA. First, obtain a projection curve and use it to estimate future SONIA fixings over the bond’s remaining coupon periods. Add the contractual spread to derive projected floating coupons, then use the projected cash flows and observed market price to solve for the yield. The example concerns a semiannual coupon bond priced above par, but the text does not show its calculation or explain the reported yield in detail.

It also notes a simplified flat-yield or flat-discount-margin convention: assume the index remains at its current level instead of projecting it from a curve. This shortcut avoids constructing projected index rates but rests on a different assumption about future coupons. The source supplies no curve data, day-count conventions, payment schedule, discounting specification, or numerical working, so it is a procedural outline rather than a reproducible valuation. Results depend on the chosen projection inputs and conventions.

Key ideas

• Project future SONIA rates from a suitable curve to estimate a floater’s future coupon cash flows.
• Add the bond’s contractual spread when projecting floating coupon payments.
• Use the observed price and projected cash flows to solve for yield.
• A flat-yield or flat-discount-margin approach can assume the current index level persists.
• The example omits curve inputs and calculation conventions needed to reproduce its stated yield.

Tags

# Computing Yield of a Sonia Bond


# Computing Yield of a Sonia Bond












How to compute yield from the price for a sonia bond. Example XS 1848770407 issued by ecB maturity 29th June 2023. semi annual cpn. Floating base SONIA compound +35 Bp. Traded price on 21st Aug 2020 100.3961 - Yield computed is 0.0907%. can some one pls help me to solve this ?

## Answer by Dimitri Vulis (score 1)

https://quant.stackexchange.com/a/57602

This is no differrent from the yield of any other floater.

Get a projection curve to project the future SONIA rates.

Based on these projections, project the future cash flows.

From the given price and the projected cash flows, solve for yield.

(Sometimes people calculate "flat yield" and "flat discount margin" by taking the current value of the index and assuming that it will remain constant, so you don't need to project it from the curve.)

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.