Bond Total Return Analysis

Part 2: Managing Bond Portfolios (Total Return Analysis)

Details of the US Treasury bond (912828M7) selected:

Maturity                        =        11/30/17

Term                                =        30 Years

Date of Settlement (one-year horizon)        =        11/30/16

Yield (as on 11/30/16), Y1        =        0.891%

Bond Value (as on 11/30/16), BV1                =        $99.997

Current Date                        =        10/02/17

Yield (as on 10/02/17), Y2        =        0.969%

Bond Value (as on 10/02/17), BV2                =        $99.985

Frequency of coupon payment                =        Semi-annual

Day count convention                =        Actual/365

Face Value                        =        $100

Coupon Rate                        =        0.875%

Note – It has been assumed that the coupons will be reinvested at the same yield at which bond was bought initially

Total Return        =  x 100[pic 1]

TRA of the bond for two different horizon periods (e.g. one-year horizon and current date)

1. For one-year horizon (11/30/16):

Interest Income        = [pic 2]

                        = [pic 3]

                        = $0.876

Total Return                =  x 100[pic 4]

                        = 0.879%

1. For Current Date (10/02/17):

Interest Income        = [pic 5]

                        = $0.0703

Total Return                = [pic 6]

                        = 0.073%

TRA of the bond for two different yield shifts (e.g.  a 25 basis points and 50 basis points shift):

1. For a 25bps yield shift (considering 1-year investment horizon)

1. For 25bps upward shift;

Reinvestment Rate        = 1.141%

Thus, Interest Income        = [pic 7]

                        = $0.877

Total Return        =  x 100[pic 8]

                        = 0.88%