Data source for 2 year gilts

aroominyork

Is there an official data point for a 2 year gilt yield and how it is calculated? TMBMKGB-02Y seems to be the ticker (if that is the right term for a benchmark). Marketwatch currently shows 3.955%, but dividenddata shows the nearest dated gilts, TG27 and TR27, as yielding 3.807% and 3.778% respectively. Yieldgimp also averages those two gilts' yield at about 3.8%.

SnowMan

The yield curve data ('archive yield curve data' covers up to 31st August 2025 and 'latest yield curve' data covers from 1st September) will give you the spot 2 year term history. It's based on mathematically fitting a curve to the data for actual gilts. Spot is the theoretical yield on a zero coupon gilt. It's currently 3.80% at 17th September for a 2 year term.

https://www.bankofengland.co.uk/statistics/yield-curves

aroominyork

So what does TMBMKGB-02Y represent? It does not seem to match the BoE data. Take 12 September for example:

- TMBMKGB-02Y open 3.938%, close 3.996%

- BoE spot 3.81%

- BoE forward 3.78%.

It is interesting that the spot rate is a bit higher than the forward (forward = actual gilt best fit?) rate. Usually when there are two gilts of similar maturity, the lower/spot yield is a fraction lower. I assume that is to compensate for the tax benefit of yield mainly coming from untaxed capital growth.

SnowMan

aroominyork said:

It is interesting that the spot rate is a bit higher than the forward (forward = actual gilt best fit?) rate. Usually when there are two gilts of similar maturity, the lower/spot yield is a fraction lower. I assume that is to compensate for the tax benefit of yield mainly coming from untaxed capital growth.

Spot and forward are completely different things.

Spot is the yield on a theoretical zero coupon gilt of that term, so it's the overall (average) implied return over 2 years.

The forward curve is the instantaneous implied interest rate at a single point in time i.e. in 2 years time in your example. So think of the 2 year spot rate as being a combination of all the instantaneous rates up to time 2 years, and not the instantaneous (forward) rate at 2 years. 

If you opened a savings account today then the analogous (forward) interest rate would be the rate of interest that applied on that account on the day exactly 2 years from now. Whereas the analogous (spot) interest rate would be the average interest rate earned over the 2 years.  

SnowMan

aroominyork said:

So what does TMBMKGB-02Y represent? 

I've not come across that sort of identifier, but it appears to be the 4.125% treasury gilt with a maturity date of 29/01/27 (GB00BL6C7720). If so that's not a 2 year gilt it's a 1 year 4 months to maturity gilt. Perhaps someone else can confirm.

wmb194

aroominyork said:

Is there an official data point for a 2 year gilt yield and how it is calculated? TMBMKGB-02Y seems to be the ticker (if that is the right term for a benchmark). Marketwatch currently shows 3.955%, but dividenddata shows the nearest dated gilts, TG27 and TR27, as yielding 3.807% and 3.778% respectively. Yieldgimp also averages those two gilts' yield at about 3.8%.

I could be out of date or wrong but my understanding is that the benchmark is linked to a particular issue and then changed to another issue closer to the relevant term every now and again. So it could be that it's linked to TS27 which is 3.955% on the 'DMO yield' in the table below and the benchmark gilt can be some number of months 'out.'

https://giltsyield.com/bond/

aroominyork

So using your savings account analogy, SnowMan, the spot rate is what I would earn between now and 18/9/2027, and the forward rate would be the rate offered by the account on 18/9/2027?

SnowMan

aroominyork said:

So using your savings account analogy, SnowMan, the spot rate is what I would earn between now and 18/9/2027, and the forward rate would be the rate offered by the account on 18/9/2027?

Yes that's right.

OldScientist

The paper linked from the BoE yield curve page is a good start for understanding what is actually done (see https://www.bankofengland.co.uk/quarterly-bulletin/2001/q1/new-estimates-of-the-uk-real-and-nominal-yield-curves) to calculate the BoE yield curves.

As already mentioned, the spot yields are zero coupon yields and continuously compounded. A search for how to convert these to the par yields ('bootstrapping') and to convert from continuously compounded will throw up some fun mathematics.

The BoE does not use the same calculation method that the US Treasury does (the latter calculates par yields on recently issued bonds and uses a different fitting technique).

As for TMBMKGB-02Y, I cannot find anywhere what the actual source or method employed is.