Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Can you assist with some context around your calculation of the yield on WBCPL? The 3.4% component is clear but can you explain the 6 year swap rate component of 4.53%. I would expect the annual yield would be 3.4% plus the 90 day BBSW which at the moment would be a total of 5.2% including the franking credit. Thank You
Hi Colin – you are correct as at today, the margin (+3.4%) +90 day bank bill = 5.18%, however when pricing a fixed income asset we look at what we expect to get over the life of the investment and the below swap rates are what the market is pricing in. While these are floating rate note so that could change as expectations around rates change, professional traders could turn this into a fixed rate note by using swaps.
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