real yield calculator

does anyone know of an online real yield calculator? If Severn Trent T22 is trading at 108, what's the real yield and the break even inflation rate?. The fixed rate 6 1/8% 2024 yields 3.21% by my calculation.


  • 5.67 pc yield by my calculation - but I was never very good at sums! Break even inflation rate? That's definitely above my pay grade.
  • On mature reflection, where do you get your 108 from? On Friday Severn Trent 6.125 is closed at 125.54 which yields 4.87 pc. Perhaps we are talking about different things.
  • edited May 2013
    The same calculators used for calculating the yield to maturity for conventional bonds can be used to calculate real yields on IL bonds. Think of the IL bond as being launched at 100% and that will be redeemed at 100% in real terms (but will likely to be different in nominal terms), and the coupon will also remain the same in real terms (but not in nominal).

    So the figures to feed into a calculator will be 1.3% for the coupon and 108 as the price. This gives a real yield for SVTL of 0.56%

    So the break-even inflation rate is: 3.21% - 0.56% = 2.65%

    What the nominal yield to maturity for SVTL is is anyone's guess: the nominal could be calculated only with a known rate of inflation, which is not knowable in advance. Just as the real YTM for conventional bonds cannot be determined with any certainty in advance because that also requires guesswork about future inflation.
  • FixerUpper,
    I suspect most readers of this forum use Excel to calculate the "Yield to Maturity", in order to monitor the yield of each investment (by downloading their portfolio into Excel). Having a good system to monitor the YTM is very important, hence my recent sale of Nationwide PIBS
    Excel function
    YIELD(settlement, maturity, rate, price, redemption, frequency [,basis])
  • The quoted yield to maturity for an index linked bond is a real yield. So looking at the bond prices and yields section of this website shows the YTM of the Severn Trent retail bond 2022 (SVTL) as -0.62% at a price of 123. Hence you will get whatever inflation is until maturity minus 0.62%

    Using the 6.125% 2024 bond (1.5 years longer) yielding 1.58% from the same source gives a breakeven inflation rate of 2.2% which doesn't sound unreasonable. So if inflation is 2.2% the two bonds will give the same return (ignoring the difference in maturity date)

    The nearest equivalent index linked gilt is yielding -2.48%
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