Investing

Selecting XTBs based on Yield vs Maturity

Longer-dated XTBs generally having higher yields, but also having higher interest rate risk (for fixed-rate XTBs).  So, how do you select a portfolio that maximises yield and minimises interest rate risk?

You can’t have the absolute best of both worlds simultaneously, but it is possible to generate a portfolio with the maximum yield you can get for the minimum term to maturity.  A Yield vs Maturity pay-off.

The quick way to do this is look at the out-performance of each XTB’s yield over the cash rate which can be done with a simple formula:

XTB YTM – Current RBA Cash Rate (1.75%)
                 Term to Maturity

Select XTBs by Yield vs Maturity

ASX CODE UNDERLYING BOND ISSUER MATURITY DATE COUPON TYPE COUPON P.A. INDICATIVE YIELD*
YTMF02 Bank of Queensland 07 NOV 2016 FLOATING BBSW + 1.15% 2.221%
YTMCWN Crown 18 JUL 2017 FIXED 5.75% 2.462%
YTMAZJ Aurizon 28 OCT 2020 FIXED 5.75% 3.856%
YTMMG1 Mirvac 18 DEC 2017 FIXED 5.50% 2.634%
YTMLLC Lend Lease 13 NOV 2018 FIXED 5.50% 2.8937%
YTMDOW Downer 29 NOV 2018 FIXED 5.75% 3.374%
YTMIPL Incitec Pivot 25 FEB 2019 FIXED 5.75% 3.170%
YTMAWC Alumina 19 NOV 2019 FIXED 5.50% 4.881%
* Data as at 06 JUL 2016

Then you can rank the results of that calculation as shown in the table below.

This gives you a very different portfolio with an average yield of 3.19%*

The average life is shorter as the XTBs with maximum yields for minimal term, come to the fore.

Other filters to narrow your selection

There are a number of other filters you can use to narrow your selection. Some of these include:

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