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How to compute yield from the price for a sonia bond. Example XS 1848770407 issued by ecB maturity 29th June 2023. semi annual cpn. Floating base SONIA compound +35 Bp. Traded price on 21st Aug 2020 100.3961 - Yield computed is 0.0907%. can some one pls help me to solve this ?

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This is no differrent from the yield of any other floater.

Get a projection curve to project the future SONIA rates.

Based on these projections, project the future cash flows.

From the given price and the projected cash flows, solve for yield.

(Sometimes people calculate "flat yield" and "flat discount margin" by taking the current value of the index and assuming that it will remain constant, so you don't need to project it from the curve.)

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  • $\begingroup$ Thanks very much. But do we project daily SONIA fixings or is there an approximation for projecting the compound applicable for each coupon payment date. What curve will be an appropriate one for projection ? SONIA OIS ? Also what should be the adjustments for look back (5 days) and Lock Outs and Payment Delays if applied ? I am a bit puzzled with FRNs with RFR compounds which are going to be the norm from now on. $\endgroup$ – Suresh Kunnoth Aug 25 at 3:28
  • $\begingroup$ Use the SONIA OIS curve to project, the curve is made up of instruments that geometrically compound the daily rates over certain tenors vs fixed. You need historical fixings and adjustments to your coupon calculator to keep track of the observation dates (i,e, shifted by 5 day lookback) and accrual dates for the coupon. I think on Sonia you will only have lookback OR lockout, not both, lookback seems like it is the adopted method for SONIA. For the lockout you just calculate the coupon up to accrual end minus lockout and then calculate the ON forward rate and compound until end of coupon. $\endgroup$ – BrownianBread Aug 25 at 11:50
  • $\begingroup$ Thanks very much BrownianBread. That approach seems logical. Nicely explained too. $\endgroup$ – Suresh Kunnoth Aug 25 at 12:12
  • $\begingroup$ risk.net/derivatives/7660706/… you need term SONIA to project what it will be on every calendar date in the future. E.g. if you have Refinitive Eikon (former Reuters) refinitiv.com/en/financial-data/financial-benchmarks/… you can get 1, 3, and 6 months. $\endgroup$ – Dimitri Vulis Aug 25 at 17:53

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