30 Year Government Bond Conversion Factor
For years now the 30 year bond has always been sought after by investors would are looking to harmonize their assets to future liabilities. Also, 30-year government bonds have been used as a benchmark to set standards for other long term securities. |
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Just like every other type of bond or security, even the 30 year government bond has a conversion factor. This conversion factor helps to see the coupon rate and the time remaining until the bond reaches maturity. The US government defines conversion factor as the "approximate decimal price at which $1 par of a security is traded if it were to have a 6 percent yield to maturity."
In order to understand the 30 year government conversion factor, one needs to take other factors into consideration. For instance, whether the bond is callable. If it is callable, then it cannot be called for at least 15 years.
The 30 year government bond conversion factor is used to determine the price of a delivered bond as bonds have different values. The conversion factor helps to standardize the price of the bonds to a theoretical bond that has a coupon rate of 6 percent.
In order to calculate the price of a bond, one needs to use the following formula:
Invoice Price = Price of the Bond Future X Conversion Factor + Accrued Interest
If you want conversion factors for different 30 year bonds issued by the US Treasury, you should check out the US Treasury website. This will help you calculate the price of the bond that your have purchased.
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