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Index-linked bonds

For index-linked bonds, the price, accrued interests and coupons are adjusted with an index coefficient to compensate for changes in inflation.

To valuate an index-linked bond position, the system uses a coefficient calculated from the market prices of the linked index and index base value: Coefficient (date) = Linked index (date) / Index base value. The coefficient is applied when calculating the accrued interests and (optionally) market value of the position.

To manage index-linked bonds, define the index and the coupon payment information in the security properties. The system calculates the accrued interest for positions automatically. You can track key bond indicators and handle coupon payouts and expirations with corporate actions.

Create an index-linked bond

To create an index-linked bond:

  1. Create an index security and get the market prices for it:

    • Add a security with the "Index" security type.

    • Add index values the same way as you add market prices for securities: specify them manually, import from a file, or feed them in from a market data provider. To learn more about adding market prices, see Manage market prices.

  2. Create the bond security: choose New → New security in the top menu. The Security window opens. Fill in the necessary fields. The following fields are specific for bonds and index-linked bonds:

    • Basic info tab:

      • Set "Bond" type.

      • Note that bonds are usually valued as a percentage of par. You can make this work in FA system by entering "100" in both Multiplier fields.

    • Extra info tab: define the coupon payment settings and link the index to the bond:

      • Dates and prices at the top.

      • Fixings information in the Fixings subtab.

      • Index information in in the Index calc. method subtab.

    For the full description of fields in the Security window, see Security window in FA Back reference.

    security_index_calc_method.png

Buy and sell index-linked bonds

To buy or sell an index-linked bond, create a buy or sell transaction. Accumulated coupon with accrued interest is bought and sold together with the bond. To include it in the transaction:

  1. Define the transaction date and settlement date.

  2. Fill in the fields:

    • Denomination and Coefficient. To have coefficient automatically calculated by the system based on index and bond properties, enter "?".

    • Accrued interest. Type "?" to have accrued interest automatically calculated.

    As a result, the system calculates the price and accrued interest amount up to the settlement date and includes them in the transaction's trade amount.

Note

You can use deferral of the bond purchase price to split the payment in several transactions. For details, see [Extension] Bookkeeping - Deferrals[Extension] Bookkeeping - Deferrals

Track accrued interest on index-linked bonds

The system calculates the accrued interest for the position. You can check the accrued interest:

  • In the Overview and Analytics+.

    bonds_accrued_interest_in_overview.png
  • In the Positions view.

Note that the accrued interest between the transaction and settlement date is fetched from the transaction.

Create coupon payments and expirations

To generate coupon payments and expirations on your bonds, create and run a corporate action. When you run a coupon payment or expiration, the system calculates the index-corrected amount and records a transaction with the corrected coupon or expiration. You can schedule corporate action runs to repeat them regularly. Use one of the tools that suits you best:

Note

You can use deferral of accrued interest to postpone the payment. For details, see [Extension] Bookkeeping - Deferrals[Extension] Bookkeeping - Deferrals

Monitor key bond indicators

Convexity and duration for bonds are shown as columns in the Securities view.

You can monitor and aggregate key bond indicators, such as yield, convexity, and duration, in Analytics+. For details, see Analytics+ in FA Back reference and Monitor portfolios with debt instruments in Analytics+.