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NBU Adopts New Model for Calculating Fair Value of Domestic Government Bonds

2 April 2019

Press Release

 

The National Bank of Ukraine (NBU) has changed its approach to calculating a fair value of domestic government bonds that the NBU owns or accepts as collateral. On 1 April, the NBU converted to a new methodology for constructing zero-coupon yield curves for domestic government bonds – the Svensson parametric model.

 

When tested, the Svensson parametric model showed the smallest deviations of the model yield from the yield determined based on the secondary market transactions with the most liquid securities, including the domestic government bonds with the remaining maturity of up to 6 months and the medium-term domestic government bonds with maturities between 3 and 5 years.

 

The NBU uses the indicative fair value of domestic government bonds, determined under the new methodology, to calculate the value of collateral for the refinancing loans to banks and under the agreements on cash storage. This indicator is transmitted in Bloomberg and Refinitiv (Reuters) trading systems and constitutes a benchmark for investors purchasing securities.

 

Having converted to the Svensson model, the NBU will continue to publish for reference the zero-coupon yield curves built for evaluation of hryvnia domestic government bonds with the use of the Nelson-Siegel parametric model.

 

The respective changes are approved by NBU Order No. 137-но On Approval of Parametric Models for Calculating Base Zero-Coupon Yield Curves dated 26 March 2019.

 

For reference

 

The procedure for evaluation at a fair value of residents’ securities that the NBU owns or accepts as collateral is approved by NBU Board Resolution No. 732 dated 26 October 2015 (as amended).

 

Fair value of domestic government bonds and adjustment factors

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Last modification   02.04.2019