# Generic bond yields

I was looking on historical sovereign bond yields for a project.

I was wondering what is meant by "generic bond yields" mentioned on bloomberg. Somewhere else i found data about the same country but not entitled as "generic".

Could someone please share his knowledge on the matter?

• For example the US Generic 10 year yield "USGG10YR Index" is the yield, going back many decades, of whatever was the current 10 year bond at the time. A specific yield, on the other hand, is the yield of a well identified 10 year bond having an issue date and a maturity date and not existing outside of these dates, the maturity of this bond gradualy decreses from 10 to 0 years as time goes on. For long term studies of interest rates it is recommended to use generic yields. Mar 3, 2018 at 19:06
• @Alex , thanks! Do you mean that under the term "generic", in your example, is "created" an index-yield that somehow takes into account the past yields of the bond at hand? Like e.g. an arithmetic mean of the yields of the same bonds drawn several decades ago ? In this way, you somehow inherit the structural characteristics of the underlying e.g. economy ? Mar 3, 2018 at 19:13

When dealing with bonds and constant maturities there are two process that can be used:

Continually rolling the '10Y index' bond

This means that you record the yield for whichever specific bond is classified as the 'on-the-run' 10Y at that point in time. That bond will continue to be sampled for some amount of time, e.g. 2-6mths and then a longer bond will become the on-the-run 10Y and that will be recorded instead.

This causes problems with time-series analysis since the changeover day will correspond to a discrete jump that reflects the 'spread' between the two bonds which is not actually market movement but instead due to the underlying characteristics of the different bonds, high coupon vs low coupon, CAC terms, coupon payment months, issue size, free float etc. etc.

Calculating from a Bond Curve

Another method is to generate a best-fit bond curve which fits all the bonds on the curve for a given day and then sample the YTM of a generic (virtual) bond from it, i.e. a 10Y 2% coupon bond.

This is my preferred way of doing it since it avoids the problem above, but has its own problems. Firstly it requires a good curve building model which takes many things into account (new issues, different bond characteristics) and the numerical solver can be difficult to program. This can be better for countries or credits which have sparse bonds since you interpolate and produce a better 10Y point. It also relies on a defined coupon specification for the 10Y which is arbitrary.

Bloomberg does not use this methods due to its lack of transparency and additional complexity.