Yieldbroker indicative pricing calculations
Yieldbroker produces both real-time and end-of-day (EOD) indicative rates for a wide range of debt securities. These indicative rates are based on data from Yieldbroker’s licensed financial markets which includes:
- Indicative price estimates - all dealers who wish to trade in a security with clients are required, at least, to provide an estimated price for that security;
- Market axes – indications from a dealer as to their buying/selling intention in a security which may include volume and the price at which the bank indicates a willingness to trade; and
- “Live” pricing – executable bids and offers.
The indicative calculation method is dependent upon the security type and the availability of executable pricing.
Pricing methodology for less liquid securities
For most securities the calculation method follows the steps below:
1. Convert any spread rates to outright yields
2. Remove any expired dealer rates
3. Remove any dealer rates that have moved beyond an acceptable tolerance relative to the last rate received from that dealer
4. Remove any dealer rates that are too far from the current average rate
5. If sufficient prices are remaining, remove up to the highest 3 and lowest 3 rates (depending upon the number of prices).
6. Produce a weighted average of the remaining rates. The weighting is based on the “firmness” of the rate (i.e. an executable rate or market axe has a higher weighting than an indicative price estimate).
7. Round the rate according to market conventions
8. The resulting outright yield is then used to calculate spreads, consideration, basis point value, duration, etc.
Pricing methodology for more liquid securities
This methodology is applicable for securities having executable pricing that is generally tradable in both our Dealer & Client and Interdealer markets. Initially this will normally include fixed rate Australian Commonwealth and semi-Government bonds.
1. For more liquid securities the Yieldbroker indicative rate will be the arithmetic average (mid) of the executable best bid and offer (EBBO) rates.
2. If there is no EBBO present for the security then the methodology for less liquid securities will be used.
3. In circumstances where the EBBO is inverted we will disregard successive crossed EBBOs (in pairs) until the EBBO is no longer crossed.
4. In circumstances where:
a. There are fewer than 3 bid or 3 offer rates; or
b. The spread between the EBBO is greater than 10 basis points
The indicative rate will correspond to an average of the indicative price estimates that are within the range of the EBBO.
To download a copy of Yieldbroker’s Indicative Pricing Calculation please click here.