Recording bonds

[mfmelb]

Hi Mark,

How do you correctly record bonds so that the TWR report comes out correctly?
When initially setting up a new bond investment, in the income section, you have the option of "no income" or "bond interest" and for prices you have "clean" or "dirty" price to use for mark-to-market.
Do you set Income to "no income" when using dirty price and "bond interest" if you use clean price?
I tried running the TWR report and it is giving me different values when I set the Income to "no income" compared to when set to "Bond Interest". Am using "dirty" price for mark-to-market.

Regards

Matt

[Mark]

Hi Matt,

I am not familiar with "clean" or "dirty" prices? You just want to record the closing prices as percent of par, which is normally near 100 for a bond. We do have tips on recording bond transactions here:

http://fundmanagersoftware.com/help/bond_tips.html

The basic idea is that you keep your prices near 100 (percent of par), and the number of shares is the face value divided by 100, so the market value comes out correct. You shouldn't need to be changing prices between "clean/dirty" type of prices, they should always just be whatever the closing price was.

If you record your bonds as described above, then you can set the Income properties of your bond investments to "bond interest", and set the coupon rate, payment frequency, maturity date, etc. This bond interest information is used to calculate accrued interest. You can optionally choose whether or not to factor accrued interest into your yield (TWR/ROI) calculations. By default, it is included, but you can control this at "Options / General Preferences... / Yields / Include Accrued Interest in Yield Calculations". If you choose to not factor accrued interest into your yields, then none of those bond interest settings will have any impact on your yield calculations.

[mfmelb]

Hi Mark,

Clean price is the price excluding the accrued interest.
Dirty price is the price inclusive of the accrued interest and risk premium - basically the traded mark-to-market price rather than the theoretical capital calculated price.

From what you have described, I think the option to include or exclude accrued interest in yield calculation would do the trick depending on which price to use.

Thanks

Matt