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When Issued Bond Enhancements | Weekly Release 5/8/20

Enhancement #1

Added the WI User Guide which is now accessible from the Help menu. This document serves as a complete tutorial on modeling up the WI, which is particularly important with the upcoming 3, 10, 20, and 30-year auctions this month

As the TBAC officially announced that the 20-year auction will take place on Wednesday, 5/20/2020, follow these steps to model it up in RiskVal.

1. Click on “New

2. In the “When Issued Creator”, check “Show All” to select a non-CT bond as the BM.

3. Select T 4.375 15-May-2040s from the “Benchmark” dropdown.

4. (Optional) Check “Range” to model up multiple 20-year WI bonds with varying coupon assumptions. The example below uses a coupon range of 1.00 – 1.375% with a coupon increment of 0.125.

5. Set “Interest Accrue Date” to 5/15/2020

6. Set “Maturity Date” by entering either “20y” or “05/15/2040”

7. Set “Issue Date” to 6/1/2020

a. 6/1/2020 is also the First Settlement Date. The 20-year will settle on Monday, 6/1/2020 because 5/31/2020 is a Sunday.

b. The WI 20-year bond Interest Accrue Date is 5/15/2020, which means that on the Issue Date (5/20/2020), the Dirty Price will also include Accrued Interest from 5/15/2020 to 6/1/2020

8. Click “Create

Given the high demand for the upcoming 20-year issuance, traders can mark the “Liquidity” assumption to better estimate the “Total Roll”. If a trader feels the new 20-year WI will be in higher demand compared to the benchmark, then adjust the liquidity with negative bp value, which means the WI will trade slightly richer.


Enhancement #2

Updated the WI Strip column names in the default-SP view

Set the System View to “default-SP” under “Table” – “System View”.

  • Set the “Roll Method” as the “SP Curve Roll” which sets the “Total Roll” value equal to the “S&P Impl WI Roll”, assuming the S+SP bonds prices are correct

o S&P Impl WI Roll = 100 * (S&P Impl WI Yld – S&P Impl BM Yld)

o S&P Impl WI Yld: Fwd yield of WI bond implied from the Strip curve

o S&P Impl BM Yld: Yield of the Benchmark bond implied from the Strip curve

  • Use the “S&P Impl WIP Roll”, which is a STRIP-recon calculation. This is a forward STRIP calculation based on the S and SP spot price, and WI S and WI SP forward prices.

o S&P Impl WIP Roll = 100 * (S&P Impl WIP Yld – S&P Impl P Yld)

o S&P Impl WIP Yld: SP derived WI whole bond yield calculated using STRIP-recon based on S + SP forward price

o S&P Impl P Yld: SP derived CT whole bond yield calculated using STRIP-recon based on S + SP spot price

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