Bond Accounting

Description of how the accounting of Bonds work in Treasury System when bonds are entered with Bond Defintions and a transaction on that bond definition in new deal Bonds.

Example: If you Issue a Bond

At start

At start you will debit the checking account and credit your debt account with the Clean price of the Bond. If the Sell is made within a coupon period the accrued coupon is credited as Bought /Sold coupon. The Bought/Sold coupon is realised at start.

Example: You Issue 500 MSEK at the price 100,5.

Coupons

The Coupons are booked as interest expenses.

Unrealised

At month end Treasury Systems create accounting for the accrued interest and if the sell has been done to a premium or discount Treasury Systems book the accrued premium discount according to the effective interest method (amortized cost). The accounting will be reversed the first day of next month.

For further information of Accruals of premium/discount see article Accrual of premium/discount and fees

At maturity

At maturity the checking account will be credited with the nominal amount. The debt account will be debited with the clean price. If there is an premium or discount it will also be booked.

You also have the possibility to automatically create accounting from long to short. 

Buy back

If you buy back your bond earlier you can choose if you will keep the position open (continues) or realise and close (partly) the position. The next coupon will then be calculated of the net position as you have written down the position.

Example 1: You close the position then the accounting is done in gross.

You buy back 250 MSEK at the price 98.

You reduce the the original debt with half as you bought back half the size of the outstanding amount. Since you had a premium from the start, half of it will be booked and the premium from the buy back ( 1 250 000 + 5 000 000 = 6 250 000). 

You credit the checking account with the clean price, this transaction also generated a premium.  Treasury systems will use the interim account again to balance the accounting. 

Example 2: You countinue and keep the position open.

You buy back 250 MSEK at the price 98

No result will be realised at this moment as you place the buy back at your Custodian account.