Legacy and Par yield: Difference between pages

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imported>Doug Williamson
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'Legacy' refers to older systems, contracts or other arrangements, implemented before current systems, regulations or other market conditions, but still having a remaining life until their retirement or final maturity.
Today’s market yield on a coupon paying bond trading at par and redeemable at par
= the fixed coupon rate payable on such a ‘par bond’.




:<span style="color:#4B0082">'''''Legacy RTGS systems'''''</span>
'''Example'''


:"TARGET2 is run by the Eurosystem under the responsibility of the Governing Council of the ECB. The NCBs of France, Germany and Italy jointly provide the single technical infrastructure and operate it on behalf of the Eurosystem. All of the eurozone countries have migrated to TARGET2 and have chosen to close their legacy RTGS systems upon migration."
The par yield for the maturity 0-3 periods is 1.90% per period.


:''The Treasurer's Handbook, Payments and payment systems.''
This means that a deposit of £1,000,000 at Time 0 periods would return:


*Interest at a rate of 1.90% per period on the original £1,000,000, at Times 1, 2 and 3 periods, and
*The principal of £1,000,000 at Time 3 periods


:<span style="color:#4B0082">'''''Legacy LIBOR contracts'''''</span>


:"Legacy contracts are those that do not mature until after the end of 2021. Depending on the financial product under consideration (loan, derivative etc), the precise response to the disappearance of LIBOR will vary."
The interest payments will be £1,000,000 x 0.019 = £19,000 per period


:''ACT Briefing Note, Transition to risk free rate benchmarks.''
The total repaid at Time 3 periods will be: principal £1,000,000 + £19,000 interest = £1,019,000.




==See also==
An application of par yields is the pricing of new coupon paying bonds.
* [[European Central Bank]]  (ECB)
*[[Eurosystem]]
*[[Eurozone]]
*[[Fallback]]
*[[LIBOR]]
*[[NCB]]
*[[Payments and payment systems]]
* [[Real-time gross settlement system]]  (RTGS)
*[[Risk-free rates]]
*[[TARGET2]]
*[[Tough legacy]]


[[Category:Financial_products_and_markets]]
 
[[Category:Technology]]
The par yield is known as the Par rate, Swap rate or Swap yield.
 
 
== See also ==
* [[Bond]]
* [[Bootstrap]]
* [[Coupon bond]]
* [[Forward yield]]
* [[Market yield]]
* [[Par]]
* [[Swap spread]]
* [[Yield curve]]
* [[Zero coupon yield]]

Revision as of 12:36, 11 November 2015

Today’s market yield on a coupon paying bond trading at par and redeemable at par

= the fixed coupon rate payable on such a ‘par bond’.


Example

The par yield for the maturity 0-3 periods is 1.90% per period.

This means that a deposit of £1,000,000 at Time 0 periods would return:

  • Interest at a rate of 1.90% per period on the original £1,000,000, at Times 1, 2 and 3 periods, and
  • The principal of £1,000,000 at Time 3 periods


The interest payments will be £1,000,000 x 0.019 = £19,000 per period

The total repaid at Time 3 periods will be: principal £1,000,000 + £19,000 interest = £1,019,000.


An application of par yields is the pricing of new coupon paying bonds.


The par yield is known as the Par rate, Swap rate or Swap yield.


See also

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