How to Interpret Investinginbonds.com Reported Yield on Bond Trades?

The Investinginbonds.com web site allows you to see a history of trades for specific bonds. Here is two lines of a typical report, reformatted to make it readable here:

Time of Trade: 10/02/2008 16:31:17 Price Paid: $94.480 Yield: 19.742% Size: $4K

Time of Trade: 10/02/2008 16:30:55 Price Paid: $85.572 Yield: 45.404% Size: $50K

What I don't understand in the above is how are they calculating the Yield? It cannot be that the same bond that gives the same coupon payment would have the yields they are reporting given the sale prices.

To see this, consider the first trade at $94.480 with yield of 19.742. That implies a coupon payment of $18.65 (if it were a once per annum payment with a 19.742% yield per annum).

For the second trade, if it were purchased at $85.572 and had the same $18.65 coupon payment, then the effective yield should be reported as

21.795% and not 45.404%.

Clearly I am not reading this correctly. Can someone familiar with how they calculate Yield here explain it to me?

Reply to
Will
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The yields are quoted as the lowest yield to call or maturity. The reported yields are so high because of the discount below par and a short term to maturity.

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Reply to
catalpa

Looks like the reported yield is likely yield-to-maturity (YTM), *not* coupon yield. Do some googling on "yield to maturity" as well as "internal rate of return" and "net present value" (the YTM calculation is essentially an IRR calculation, and that in turn depends on the NPV concept).

-- Rich Carreiro snipped-for-privacy@rlcarr.com

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Reply to
Rich Carreiro

Let's assume they are using Yield to Maturity. So my present value is what I pay today, and I generate from that cash flows at each coupon date and then on repayment of the par. From those cash flows one can calculate an internal rate of return (IRR).

Having said that, I am still confused. The above two lines I gave were for the *same bond* and the difference in time of the trade is less than 30 seconds. So even if one wants to construct a yield to maturity IRR, I don't see how the second trade above gets a 45.4% yield to maturity but the first trade gets only $19.742% Can the yield to maturity be so remarkably different for such a small difference in the current bond price?

Can someone recommend any software that would take as input the CUSIP, and would show as output the stream of expected cash payments, and a calculation of the IRR for that CUSIP? Of course I can do that in Excel but being able to enter in a large group of these bonds (say 25 to 100) and have the software constantly update the YTM calculation against current trades would be a wonderful tool to have.

Reply to
Will

But there's a huge price difference between the trades. The later trade price is almost 10% more than the earlier one. That's going to have a significant effect on YTM.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

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Reply to
Rich Carreiro

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