Money-Market Basis and Bond Basis
Definition
Money-market basis refers to the calculation of interest on the basis that there are exactly 360 days in each year; this is the market convention in the majority of money markets and is generally used also for certain long-term instruments such as floating rate notes and medium-term CDs.
Bond basis refers to the calculation of interest on the basis of a ‘bond’ year. This is less precise because, as described below, there is more than one way of calculating a year in the bond markets. In general, however, bond basis approximates to the assumption that there are exactly 365 days in each year. Bond basis is used for some money markets as well as for fixed-rate bonds.
How are they used?
Although there ...
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