Mata kuliah
: F0922 - Pengantar Analisis Pendapatan Tetap
Dan Ekuitas
Tahun
: 2010
YIELD SPREAD PADA SURAT BERHARGA
YANG BERSIFAT UTANG
Pertemuan 4
-mupo-
YIELD SPREAD PADA SURAT BERHARGA YANG
BERSIFAT UTANG
Materi:
1.
Interest rate determination
2.
Yield on non Treasury rate
3.
Swap spread
Bina Nusantara University
3
1.
Interest rate determination
Focus in:
1.1 the relationship between interest rates offerd on different
bond issues at a point in time
1.2 the relationships among interest rates offered in different
sectors of the economy at given point in time.
Example: the FED uses the following interest rate policy tools:
 Open market policy
 The discounted rate
 Bank reserve requirements
 Verbal persuasion to influence how bankers supply credit
to businesses and consumers
Open market policy dan merubah discounted rate sering
digunakan oleh the Fed. Secara bersamaan keduanya dapat
menaikkan atau menurunkan cost of funds dalam
perekonomian.
2. Yields on non Treasury securities
Measuring Yield spreads
Yield spread between any two bond issues, bond X and
bond Y, computed as follows:
Yield spread= yield on bond X - yield on bond Y
Example: on Feb, 2002, the yield on the 10 year on the run
Treasury issue was 4,88% and the yield on a single A rated 10 year
industrial bond was 6,24%. If bond X is the 10 year industrial bond
and bond Y is the 10 year on the run Treasury issue, the absulute
yield spread was:
Yield spread= 6,24 – 4,88% = 1.36% or 136 basis point
Sometimes bonds are compared in terms of a yield ratio:
Yield ratio = Yield on bond X
Yield on bond Y
Yields on non Treasury securities (cont’)
In US, bond market when these measures are computed, bond Y (the
reference bond) is a Treasury issue. The equations for the yield
spread measures as follow:
Absolute yield spread:
yield on bond X – yield of on the run Treasury
Relative yield spread:
yield on bond X – yield of on the run Treasury
yield of on the run Treasury
Yield Ratio:
yield on bond X
yield of on the run Treasury
Yields on non Treasury securities (cont’)
For the above example comparing the yields on the 10 year single A
rated industrial bond and the 10 year on the run Treasury,
the relative yield spread and yield ratio are computed :
Absolute yield spread = 6.24%-4.88% = 1.36% = 136 basis points
Relative yield spread = 6.24%-4.88% = 0.279 = 27.9%
4.88%
Yield spread = 6.24% = 1.279
4.88%
3.Swap spread
Another important spread measure is the Swap spread.
3.1 Interest rate Swap and the Swap spread
In an interest rate Swap, two parties (called counterparties)
agree to exchange periodic interest payment.
In the most common type of Swap, one party agrees to pay the
other party fixed interest payments at designated date for the
life of the Swap. This party is referred to as the fixed rate
payer. The fixed rate that the fixed rate payer pays is called
the Swap rate. The other party, who agree to make
interest rate payments that flot with some reference rate, is
reffered to as the fixed rate receiver.
The fixed rate has a specified “spread” above the yield for a
Treasury with the same term to maturity as the Swap. This
specified spread is called the Swap spread. The Swap rate is
the sum of the yield for a Treasury with the same maturity as
the Swap plus the Swap spread
3.2 Role of Interest Rate Swap
Interest rate Swap has many important application in fixed
income portofolio management and risk management. They tie
together the fixed rate and floating rate sector of the bond
market.
As a result, investor can convert a fixed rate asset into a
floating rate asset with an interest rate Swap
3.3 Determinant of the Swap spread
Market participants throughout the world view the Swap
spread as the appropriate spread measure for valuation and
relative analysis.
Swap rate = Treasury rate + Swap sread
where Treasury rate is equal to the yield on a Treasury with
the same maturity at the Swap.
Determinant of the Swap spread (cont’)
Since the parties are swapping the future reference rate for
the Swap rate:
reference rate = Treasury rate + Swap spread
Solving for the Swap spread we have :
Swap Spread = reference rate – Treasury rate
Since the most common reference rate is LIBOR, we
can substitute this into the above formula getting:
SWAP SPREAD = LIBOR – Treasury rate
Thus, the Swap spread is a spread of the global cost of short
term borrowing over the Treasury rate