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Bond Yields and Index Returns
I am computing the spread between the returns of SP500 and 10 year Treasury note over a 5 year period.I have the closing prices of the spx index and can compute returns as ln(p2/p1). For 10 year treasury, I haveYields (not prices). How do I work with yields, if it were prices, I would computed the returns the same way asIndex returns. If it is yields, should I just subtract the yields. but it has the inverse relationship with pricesso if the yield went from 4.00 to 4.10 (day1 to day2), should I have the return as the yld change i,e (4.10/4 -1).
Bond Yields and Index Returns
If you have historical data for duration, you can approximately get capital return as-Dur*yield_ch. But need other info on accrued interest or cpn to get income return.Or simply calculate price asPrice = sum_i=0.5yr_to10yr{ cpn/(1+yield/2)^2t(i)} + 1/(1+yield/2)^20But don't know what re-investment rate you want to use.
Bond Yields and Index Returns
Appreciate your reply. Rephrase the question :I know the relationship between Price and Yield, If I want to create a time series of daily returnsof 10 year returns and only have yields. i,e Y1/Y2 -1 is not the same number as P2/P1 -1 (note I have Y1/Y2 -1)/.one is not the equivalent of the other, for stock index series I have used P2/P1 -1.