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 running yield based on the bond's clean price. The formula combines the coupon income and capital appreciation (or depreciation) between the current price and face value over the remaining term:

$$ \text{Yield (%)} = \frac{\text{Annual Coupon} + \frac{(\text{Face Value} - \text{Price})}{\text{Years to Maturity}}}{\frac{\text{Face Value} + \text{Price}}{2}} \times 100 $$

  • Annual Coupon = Face Value × Coupon Rate
  • Face Value is assumed to be AUD 100 for all Treasury bonds
  • Price is the clean price scenario chosen on the dashboard
  • Years to Maturity = Remaining days ÷ 365.25 (accounts for leap years)

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

Annual Coupon = 100 × 0.0275 = 2.75
Capital Adjustment = (100 − 104.50) ÷ 2.25 = −2.00
Average Price = (100 + 104.50) ÷ 2 = 102.25

Yield (%) = ((2.75 − 2.00) ÷ 102.25) × 100 ≈ 0.73%

This simplified running yield does not model coupon reinvestment, accrued interest, or actual settlement dates. It is intended only as 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, day-count conventions, and settlement lags are ignored—actual yields to maturity 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.
  • 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.