what is yield basis 
the yield basis is a method of quoting the price of a fixed income security as a yield percentage rather than as a dollar value this allows bonds with varying characteristics to be easily compared the yield basis is calculated by dividing the coupon amount paid annually by the bond purchase price understanding yield basisunlike stocks which are quoted in dollars most bonds are quoted with a yield basis for example assume a company is listed with a 6 75 coupon rate and is set to mature 10 years from the date of issuance the 1 000 par bond is trading at a dollar value of 940 the yield basis can be calculated using the current yield formula presented as 1following our example above the coupon to be paid annually is 6 75 x 1 000 67 50 therefore the yield basis is 67 50 940 0 0718 or 7 18 the bond will be quoted to investors as having a yield basis of 7 18 the yield quote tells a bond trader that the bond is currently trading at a discount because its yield basis is greater than its coupon rate 6 75 if the yield basis is less than the coupon rate this would indicate that the bond is trading at a premium since a higher coupon rate increases the value of the bond in the markets 2 a bond trader could then compare the bond to others within a certain industry bank discount yieldthe yield basis of a pure discount instrument can be calculated using the bank discount yield formula which is unlike the current yield the bank discount yield takes the discount value from par and expresses it as a fraction of the par value not the current price of the bond this method of calculating the yield basis assumes simple interest that is no compounding effect is factored in treasury bills are quoted only on a bank discount basis 3for example assume a treasury bill with a 1 000 face value is selling for 970 if its time to maturity is 180 days the yield basis will be as treasury bills pay no coupon the bondholder will earn a dollar return equal to the discount if the bond is held until it matures special considerations