1588

Question

We have some concerns about QRT S 06.02 column C0360 (Duration).In LOG it states: “Asset duration, defined as the ’residual modified duration’ (modified duration calculated based on the remaining time for maturity of the security, counted from the reporting reference date). For assets without fixed maturity the first call date shall be used. The duration shall be calculated based on economic value.“
In case of floating rate bonds our undertakings have different views regarding the term „the remaining time for maturity“.We found 2 EIOPA Q&A regarding duration, Q&A 970 and 1260, but these did not provide an answer.
Therefore, the question is how to interpret the term „the remaining time for maturity“ for floating rate bonds in the QRT S 06.02 column C0360? Is thisa) the remaining time until the next interest rate resetorb) the remaining time until the final maturity of the bond?
We would be grateful if you could indicate which option should be used.

European Insurance and Occupational Pensions Authority · Accepted Answer

Floating rate bonds have low durations. A floating rate bond is basically a short term bullet bond that is rolled at every reset/coupon date. The duration of a bullet bond is its maturity. The maturity that matters is the one for the first bullet because for all the subsequent ones, the coupon will be reset at the prevailing market rate. For these reasons, there is little rate sensitivity (low duration) for floating rate bonds.
Therefore, if the question is what should be „the remaining time for maturity" for floating rate bonds in the QRT S 06.02 column C0360 the answer is a) the remaining time (at the reference date) until the next interest rate reset.

1588

Question

Answer

Similar Q&As