What Is Semi-Annual Bond Basis (SABB)?

Semi-annual bond basis (SABB) is a conversion methodology that allows investors to directly compare yields on bonds with varying characteristics. Since bonds come with all sorts of interest rates and payment frequencies, it's essential to be able to find some standard measure to compare different kinds of bonds side-by-side. By using SABB, bonds which do not pay 澳洲幸运5官方开奖结果体彩网:semi-annual coupons can b♛e made equivalent to those that do for evaluation easier.

SABB can be compared with the 澳洲幸运5官方开奖结果体彩网:bond equivalent yield (BEY) calculat🍌ion, whꦆich converts bond coupons instead into an annualized yield.

Understanding Semi-Annual Bond Basis (SABB)

Semi-annual bond basis can help investors who are considering the purchase of a bond to make sure they’re comparing apples to apples. Bonds issues employ a variety of yield conventions. Some bonds pay interest on an annual basis, while others accumulate interest semi-annually, or twice per year. 澳洲幸运5官方开奖结果体彩网:Corporate bonds typically pay a coupon semi-annually, which means that, if the inte𒈔rest rate on the bond is 4%, each $1000 bond will pay the bondholder a payment of $20 every six months (a total of $40 per year).

U.S. Treasury notes and 澳洲幸运5官方开奖结果体彩网:municipal bonds are other examp💟les of bonds that accrue interest on ✅a semi-annual basis. For this reason, these investments typically have yields quoted on a semi-annual bond basis.

Other bonds that pay interest at a different rate can be converted to a semi-annual bond basis to determine theirꦑ semi-ann✨ual equivalent. In most cases, however, bond yields are expressed in annual, rather than semi-annual, terms.

The semi-annual bond basis calculation can be complicated to understand because it involves complex market factors, including fluctuations in the prevailing interest rate. Bonds may also have different interest rates and maturities. As interest rates in the bond market fluctuate, a bond’s price may deviate significantly from its 澳洲幸运5官方开奖结果体彩网:par value.

All these factors will have an impact on the bond yield. If a broker is unable to provide this computation for you and you plan on investing i♚n bonds on a regular basis, you should consider investing in a financial calculator or computer program that can assist you in this calculation.

Seౠmi-Ann🌊ual Bond Basis Compared to Bond Equivalent Yield

A semi-annual bond basis is not the only way to compare the yields of different fixed-income investments. The bond equivalen🐼t yield (BEY) is an alternative formula that converts semi-annual, quarterly, or monthly discount bond yield🌄s into an annual yield.

The BEY is the yield reported by the Federal Reserve and typically cited in newspapers. However, the BEY is not usually used when considering longer maturity bonds. When comparing longer maturity bonds, convert 澳洲幸运5官方开奖结果体彩网:discount rates to a semi-annꩵual bond basis for the most accurate comparison.

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.