Treasury Securities - Efective interest rate update for Variable rate bonds (04H)

[Former Member]

Hello All,

For Securities - product type 04H (Variable rate bonds): We can have a variable LIBOR rate defined in the security ID and all the cash flows (SAM5000) gets updated with the rate when rates are entered in OT25 and updated using FWUP.

However, the effective interest rate does not change in the transaction (FTR_EDIT) even when i change the LIBOR rate... It always remains as the same rate as one during settlement. The only way that i can update the Effective rate is by actually going to change the transaction (FTR_EDIT) and click on PRICING tab below the Eff.Int.Rate. This is not possible in production as users cant edit a transaction after settlement.

Is there some transaction that i need to run to update the effective interest rate in the transaction after every rate update in OT25 and FWUP?

Also, do any one know of an SAP table that would store all these historic effective interest rates?

Any help will be much appreciated and rewarded.

Thanks in advance for your help!

Regards,

Shilpa

[Former Member · Accepted solution]

We chcked with SAP and they came back saying that SAP does not track the effective interest rate changes when LIBOR is changed....

Unfortunately there is no current solution.

Thanks all for your help!!

Shilpa

[Former Member]

Hello - Any help in this topic would be very helpful.. Please feel free to let me know even if you just have some pointers and not necessarily the exact solution.

Thanks again!

Shilpa

[Former Member]

Hi,

The effective interest rate available in the transaction is specific for that purchase.  Why do you want to change the effective interest rate in a bond purchase transaction after the sale has been concluded?  The effective interest rate is essentially the YTM at the time of purchase and it is calculated based on the purchase price and other interest flows at the time of purchase.  So after you conclude the purchase, irrespective of changes to interest rates, you cannot change the price/YTM at purchase.

However if you want to calculated YTM or effective interest rate after purchase, I think it can be done through MRA.  From EH3 onwards, YTM is a key figure and can be calculated at portfolio level.  In Portfolio Analyzer, you can calculate YTM at the ID level.

Regards,

Ravi

[Former Member]

Hello Ravi,

Thank you so much for your response.

Let me elaborate a little on our situation. we have corporate bond purchases with variable rate using LIBOR. The effective interest rate in FTR_EDIT is computed based on the (Accrued interest (SE8702), Premuim and Nominal interest (SAM5000)) at the time of purchase.

Our typial corporate bond lasts for about an year with interest fixing at 3 months or 6 months.

When we try to compute the rate of return for a particular portfolio / product type; the calculation involves a multiplication with Effective interest rate. This is a custom report that we developed.

In this scenario; if we run the report for 06/01/2013; We want the report to compute the rate of return using the effective interest rate of the deal (Security ID and Transaction) as of 06/01/2013; Similarly when we run the report for 12/01/2013, it should compute the rate of return based on the effective rate of 12/01/2013 and hence the requirement to track effective interest rate on a time scale.

Now, with regards to settings in Market Risk Analyzer - Portfolio analyzer, we did not need to do any set up in the area till now; we use EHP4, so can you please elaborate on the settings that could be done here to help me out with the requirement.

I am essentially looking for the effective interest rate to be modified either online (when LIBOR is updated) or we need to know the transaction that we can run to update the rate along with modifying LIBOR in OT25....

Any help will be much appreciated and rewarded.

Thanks

Shilpa