Hi group. I was wondering what the forumla is to calcuate the change in bond price due to change of interest rate. For example, suppose the 10 year treasury bond interest rate changed from 3.3% to 3.2% in one day, what is the change in bond price? What is the formula? thanks.
You can estimate the price using bond duration. % change in bond price = - Duration x % change in interest rate in this case % change in interest rate is 0.1% Another way to approximate is to simply discount the cash flows You know the maturity, you know how often cash flows come in, you know the size of cash flows (coupon rate) discount them at one rate, then discount them at another rate (assuming the 0.1% change is a parallel shift )
Thanks for the reply. Can you please show me this exact example. On May 6th, the rate on the 10 year treasury was 3.15. on May 7th it was 3.3. What is the % change on the treasury? thanks
You don’t know what you’re talking about do you?
What I am trying to do is find the daily price change (not yield change) on the 10 year bond dating back as far as possible.
inkt2002 Wrote: ------------------------------------------------------- > What I am trying to do is find the daily price > change (not yield change) on the 10 year bond > dating back as far as possible. Pull out your BAII Plus… they’re on sale in Delhi.
Ya but if you want the historic price just pull it off Bloomberg or whatever. If you want to estimate the future price based on a yield change use duration/convexity. Buy a Fabozzi book!
Thanks guys. But doesnt bloomberg just give you the historic yield, and not price? I know long term bonds went up 20% in 2008, but bloomberg only shows a drop from 4% to 2% in the yield. That doesnt show the entire picture.
brianr Wrote: ------------------------------------------------------- > inkt2002 Wrote: > -------------------------------------------------- > ----- > > What I am trying to do is find the daily price > > change (not yield change) on the 10 year bond > > dating back as far as possible. > > Pull out your BAII Plus… they’re on sale in > Delhi. +6.0221415×10^23
The 10 year bond is issued with varying denominations (I think) and coupon rates, so looking at the prices wouldn’t be helpful anyways.
For every straight bond (i.e. without embedded options), there is a 1-to-1 relationship between interest rates and bond prices. When interest rates go up, bond prices drop, and vice versa. The detail of that relationship depends primarily on 1) the time left to maturity, 2) the timing of interest payments, and 3) the size of the coupon (unless it’s a zero coupon bond, in which case the time to maturity is all that matters). This is calculable with a business calculator, and probably also with excel; it’s just a pain to type in all the relevant information to do it. I believe the way the calculator does it is with an iterative program (similar to goal-seek), so it doesn’t boil down to a nice easy formula.
Bankin’ Wrote: ------------------------------------------------------- > You don’t know what you’re talking about do you? That’s just wrong. Funny, but wrong.