What is Bank Discount Basis?
A quoting convention used by financial institutions when quoting prices for fixed-income securities sold at a discount, particularly U.S. Government issues. The quote is presented as a percentage of face value, and is determined by discounting the bond by using a 360-day-count convention, which assumes there are twelve 30-day months in a year.
Also referred to as “”discount yield”". Read more for examples and further explanation including related video clips and also comments
Example explains Bank Discount Basis
Differences in the day count convention used by the firm quoting a fixed-income security is subtle, but important. Over longer maturities, the day count convention will have a greater impact on the current ‘price’ of a bond than if the time to maturity is much shorter.
The 30/360 day-count convention is the standard when quoting government treasury bonds for banks.
