AAA Corporate Bond Yield

[Countdown]

We have a long term creditor on the balance sheet which I need to discount to NPV using the AAA Corporate Bond yield. Does anybody know where I can get this from? Is there an average for UK companies?

Google gives me Moody’s AAA CB yield but this seems to be for US companies. Is there an equivalent figure for UK companies?

Thanks in advance

[fido]

My company can sell you the gubbins for a whole portfolio, but you'd probably best just look at comparable AAA bonds in the UK market for a price.

[sidicks]

Countdown said:

We have a long term creditor on the balance sheet which I need to discount to NPV using the AAA Corporate Bond yield. Does anybody know where I can get this from? Is there an average for UK companies?

Google gives me Moody’s AAA CB yield but this seems to be for US companies. Is there an equivalent figure for UK companies?

Thanks in advance

Yield on the Bank of America Merril Lynch AAA Sterling Corporate Index (ALL bonds) is 2.6% (circa 60bps spread) (14.5 year duration).

If you want shorter dated bonds, the 1-10 year index has a yield of 2.8% (circa 150bps spread), duration of 4.2 years)

[Countdown]

Thanks both.

Sidicks - have you got a link for the shorter duration yield? Sadly I doubt PwC will accept a link to this page as audit evidence

[sidicks]

Countdown said:

Thanks both.

Sidicks - have you got a link for the shorter duration yield? Sadly I doubt PwC will accept a link to this page as audit evidence

Sorry mate, this is from Bloomberg, so I can't provide a link.

[PugwasHDJ80]

You would usually use a five or ten year risk free rate, which is usually on uk government gilts.

Current five year rate is 1.88% per year.

http://www.bloomberg.com/markets/rates-bonds/gover...

This is a widely known and accepted measure, if your auditor has a problem with it then ask to speak to a partner!

[sidicks]

PugwasHDJ80 said:

You would usually use a five or ten year risk free rate, which is usually on uk government gilts.

Current five year rate is 1.88% per year.

http://www.bloomberg.com/markets/rates-bonds/gover...

This is a widely known and accepted measure, if your auditor has a problem with it then ask to speak to a partner!

Surely the point is that this isn't risk free debt, hence need a higher discount rate?!

[CarlosFandango11]

sidicks said:

PugwasHDJ80 said:

You would usually use a five or ten year risk free rate, which is usually on uk government gilts.

Current five year rate is 1.88% per year.

http://www.bloomberg.com/markets/rates-bonds/gover...

This is a widely known and accepted measure, if your auditor has a problem with it then ask to speak to a partner!

Surely the point is that this isn't risk free debt, hence need a higher discount rate?!

Yes, for the OP's requirement, a risk-free rate doesn't seem to be appropriate given the cashflows being discounted.

[PugwasHDJ80]

It's for an auditor though! They aren't always reasonable

More seriously though the corporate 5 yr bond rate is 3-4 % so we are talking very small variances.

If you pull the creditor down too much you'll just increase your CT bill!

[CarlosFandango11]

PugwasHDJ80 said:

It's for an auditor though! They aren't always reasonable

More seriously though the corporate 5 yr bond rate is 3-4 % so we are talking very small variances.

If you pull the creditor down too much you'll just increase your CT bill!

The auditors that I deal with expect the discount rate to reflect what's being discounted.... And they wouldn't be convinced by your small variances argument..... Auditors generally prefer that you use discount rates that are meant to be used 😉

Hence risk free isn't going to be acceptable for the OP....

[kiethton]

PugwasHDJ80 said:

It's for an auditor though! They aren't always reasonable

More seriously though the corporate 5 yr bond rate is 3-4 % so we are talking very small variances.

If you pull the creditor down too much you'll just increase your CT bill!

Depending on the number of bonds held the difference between a 1.8% and 4.0% bond can vary hugely, if it was 96% and 97.8% I'd agree however

[CarlosFandango11]

kiethton said:

PugwasHDJ80 said:

It's for an auditor though! They aren't always reasonable

More seriously though the corporate 5 yr bond rate is 3-4 % so we are talking very small variances.

If you pull the creditor down too much you'll just increase your CT bill!

Depending on the number of bonds held the difference between a 1.8% and 4.0% bond can vary hugely, if it was 96% and 97.8% I'd agree however

So you didn't read the OP... No bonds are being held here. And I take it you don't work in a finance area that is audited!