Methodology

How We Estimate Australian Government Bond Yields

This guide explains the assumptions and formula used to calculate the indicative running yields displayed on the dashboard.

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Yield Formula

We present an annualised yield-to-maturity style estimate based on the bond's clean price. The model first estimates accrued interest from the inferred semi-annual coupon schedule to convert the scenario clean price into an estimated dirty price. It then projects remaining coupon cashflows plus principal at maturity and solves for the annual yield that discounts those cashflows back to that dirty price:

$$ \text{Dirty Price} = \text{Clean Price} + \text{Accrued Interest} $$

$$ \text{Dirty Price} = \sum_{i=1}^{N}\frac{CF_i}{(1+y)^{t_i}} $$

  • CFi are remaining coupon cashflows and final principal repayment
  • y is the annualised yield solved numerically from the equation above
  • ti is time to each cashflow in years (calendar days ÷ 365.25)
  • Coupons are assumed semi-annual using the bond's maturity day/month schedule
  • Face Value is assumed to be AUD 100 for all Treasury bonds
  • Price is the clean price scenario chosen on the dashboard
  • Accrued Interest is estimated by straight-line interpolation across the inferred coupon period
  • Settlement conventions are still simplified and exact market dirty prices may differ
  • Short-dated bonds with less than 30 days to maturity are shown as N/A rather than annualising unstable edge-case returns

Worked Example

Consider a bond with the following characteristics:

  • Face Value: AUD 100
  • Coupon Rate: 2.75% paid semi-annually
  • Price Scenario: AUD 104.50
  • Years to Maturity: 2.25 years

The calculator builds future coupon dates, assigns each coupon cashflow plus final principal, and solves for y in the present-value equation.

This gives a maturity-sensitive estimate that behaves more realistically for short-dated premium bonds than the earlier running-yield approximation.

This estimate does not model coupon reinvestment or exact market settlement mechanics. It remains an indicative metric for quick comparisons.

Limitations & Assumptions

  • Face values and coupon schedules are taken from Australian Government E-AGB disclosures; confirm with official term sheets.
  • Accrued interest is estimated from the inferred coupon period, but actual market accrual, settlement lags, and day-count conventions will differ.
  • Prices are user-entered scenarios or indicative values and may not reflect executable market levels.
  • Yields are recalculated using calendar days; business-day adjustments and ex-coupon periods are not considered.
  • Bonds inside the final 30 days to maturity are excluded from the annualised yield display because the result becomes too unstable to be decision-useful.
  • The approach is not suitable for inflation-linked bonds or instruments with embedded options.

For investment decisions, perform a full yield-to-maturity or present-value analysis using a professional risk system or consult a licensed adviser.