Difference in values obtained from BNDYIELD in MATLAB and YIELD in EXCEL

'BNDYIELD 'is a function that calculates the yield to maturity for a fixed-income security. Let's take an IBM bond as an example. The CUSIP '459200JG7' refers to a (almost 10 year to maturity from today) IBM corporate bond with the following characteristics:

Coupon: 3.45% Maturity: 02/19/2026 Day Count: 30/360 Coupon Frequency: Semi-Annual No Odd Coupons (Last or First)

Let's say that I'm purchasing this bond today for a settlement Date (t+3) of May 10th, 2016. Let's say that I am purchasing this Bond at a price of $106.8125 and assuming a redemption (par) amount of $100, I would like to know what is the yield of maturity I am getting.

If I use the bndyield formula in MATLAB:

Yield = bndyield(106.8125,0.0345,'05/10/2016','02/19/2026','Period',2,'Basis',1)

I get a result of 0.026530631026615 or 2.6531% yield (rounded up)

Using an Excel formula of YIELD...

=YIELD("5/10/2016","02/19/2026",0.0345,106.8125,100,2,0)

...and using the same inputs, I get the following result:

0.0265385150 or a yield of 2.6539%.

The 'BNDYIELD' in MATLAB and YIELD function in Excel generate different values for same set of parameters.

Answer 1

[MathWorks Support Team]

The issue here is the optional input argument DiscountBasis in the function BNDYIELD. The default for this optional input argument is to use actual/actual for SIA bases. Here is the description of this optional input argument:

 

DiscountBasis - Basis used to compute the discount factors for

                    computing the yield.  The default behavior is for SIA

                    bases to use the actual/actual day count to compute

                    discount factors, and for ISMA day counts and BUS/252

                    to use the specified basis.

 

It seems like Excel uses the same basis for discounting and generating cash flows.  We get a similar answer when calling  BNDYIELD with this optional argument.

 

>>Yield = bndyield(106.8125,0.0345,'05/10/2016','02/19/2026','Period',2,'Basis',1, 'DiscountBasis',1)

 

 Yield =
     0.026538515006546