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Posts Tagged ‘risk free rate’

Historical rates for UK Government bonds (gilts, treasury bills)

For UK Treasury Bills (3 Months):
From Bank of England website, select Statistics, Interest and Exchange Rates Data, Wholesale interest and discount rates, Treasury Bills (3 month) Sterling, End month – IUMAJNB – Monthly.

Use Datastream

  • Under Economics there is 3 Months Treasury Bills Yield (UKGBILL3) and Gross Redemption Yield on 20 Year Gilts (UKGBOND.)
  • Under Interest rates there is UK Treasury Bill Tender 1M (UKTBT1M) and UK Treasury Bill Tender 3M (UKTBTND)
  • Under Bonds and convertibles search using gilt in name
  • Under Bond Indices and CDS there are DS-TR benchmark indices – search for “Datastream Mnemonic starts TRUK” for benchmarks in the UK list LTRUKBMK, or using gilt in name or gilts as market.

Use Bloomberg function BTMM and select UK, or search for a specific rate.

Use Global Financial Database GFDatabase – GFD Filter Search: Country – United Kingdom and Series Type – Treasury Bill Yields or Government Bond Yields

The UK Debt Management Office also provides Gilt Market – Prices and Yields from 1996 and additional Gilt Market Data and Money Market / Treasury Bills Data

See also those posts tagged with risk free rate.

Risk Free Rates on Datastream

25 October 2013 10 comments

A couple of business library blogs have mentioned the risk free rate recommendations on the Thomson Reuters Datastream extranet – see Risk free rates, T-Bills, Benchmark bonds (Databaser, Oct 2013) and Datastream – Risk free rate (Aberconway Library, Sept 2011). The first recommendation is to use 3 Month Treasury Bills where possible (Thomson Reuters, 2009). Unfortunately, these recommendations have not been updated recently. Some of the series mentioned are now dead (i.e. do not give up to date data), including those for the US and UK.

Thomson ReutersThere are alternative sources for 3 Month Treasury Bills (T-Bills) on Datastream:

US

  • USTBL3M – 03/07/1989 – 01/05/2007, Daily, US TREAS.BILL 3M(USE FRTBS3M)’DEAD from Financial Times
  • FRTBS3M – 04/01/1954 – present, Daily, US T-BILL SEC MARKET 3 MONTH from Thomson Reuters
  • FRTBW3M – 08/01/1954 – present, Weekly, US T-BILL SEC MARKET 3 MONTH (W) from Federal Reserve, United States
  • TRUS3MT – 04/01/1954 – present, Daily, TR US T-BILLS BID YLD 3M from Thomson Reuters

UK

  • UKGBILL3 – 31/01/1972 – 31/10/2011, Monthly,  UK 3 MONTHS TREASURY BILLS YIELD from UK Office for National Statistics (ONS)
  • UKTBTND – 04/01/1985 – present, Weekly, UK TREASURY BILL TENDER 3M from UK Debt Management Office
  • TRUK3MT – 02/01/1975 – present, Daily, TR UK T-BILLS BID YLD 3M from Thomson Reuters

By default these express the 3 Month T-Bill rate as an anualised percentage yield (comparison chart below). However FRTBS3M and UKTBTND also have datatype RI – total return index – which makes calculating a monthly/weekly/daily return easier.  See comment March 3 1014 below.

UK 3 month T-Bill rates (click to expand)

UK 3 month T-Bill rates (click to expand)

Other countries

Thomson Reuters have government bond benchmark lists by country – Datastream code LTRXXBMK where XX is the country code. In total Datastream has benchmark lists for 47 countries with 32 having a 3 month rate, e.g. TRNL3MT for the Netherlands. (For example see comment March 2014)

For the examples above, LTRUKBMK is the UK list and LTRUSBMK is the US list, with TRUK3MT the UK 3 month rate and TRUS3MT the US 3 month rate.

Additional notes

The choice of the 3 Month Treasury Bill as the risk free rate is very common but not universal. Some choose 1 Month Treasury Bills (4 week) where these are available – see Risk Free Rate and Fama French Factors (Jan 2013)

Risk Free Rate for UK and US (August 2011) is a good starting point if you are looking for alternative sources.

The Thomson Reuters extranet recommendations (Thomson Reuters, 2009) have been mentioned in a previous post Risk Free Interest Rate (November 2009) and do not seem to have been updated since then.

References

Thomson Reuters (2009) Risk free interest rates. Available at: (Datastream extranet) http://extranet.datastream.com/data/Exchange%20&%20Interest%20Rates/RiskFreeInterestRates.htm (Accessed: 25 October 2013).

Appendix

US risk free rate (click to expand)

US risk free rate (click to expand)

A comparison between the US risk free rate returns from Datastream ( PCT#(FRTBS3M(RI),1Y) ) and annual factors from Ken French – see comment below.

The 2000 figure is 6.05 from Datastream and 5.88 from Ken French’s annual factors.

We would not expect these to be identical since one is based on the return of 3 month treasury bills and the other on 1 month treasury bills.

Risk Free Rate and Fama French factors

18 January 2013 14 comments

Throughout 2012 Risk Free Rate for US and US has consistently been one of our top posts.

kenfrenchdataFor a US risk free rate, Ken French’s site provides downloadable files of Fama/French factors that include this.

Fama French factors from Kenneth R. French Data Library (click to expand)

Fama French factors from Kenneth R. French Data Library (click to expand)

On the data library page:

Scroll down to U.S. Research Returns Data (Downloadable Files)

The Fama/French Factor downloadable files are available in default/monthly, weekly or daily format.

The risk free rate in these files is based on the returns for a 1 month (4 week) Treasury Bill, and these are expressed in terms of monthly, weekly or daily returns.

For example, the monthly risk free return values include:

  • 200701  –  0.44
  • 200801  –  0.21

For January 2007 the risk free monthly return is 0.44%, and for January 2008 0.21%

FRED-Tbills-2013-01-17If rather than Ken French’s site you go to the FRED Economic Data (Federal Reserve Bank of St. Louis Economic Data) and download the 4-Week Treasury Bill: Secondary Market Rate (Series id TB4WK) from Board of Governors of the Federal Reserve System H15 Selected Interest Rates, they you will get a file expressing the annualised yield on a T-Bill.

For example, the monthly yield figures for TB4WK include:

  • 2007-01-01 – 4.84
  • 2008-01-01 – 2.68

For January 2007 the annual yield on a 4-week T-Bill was 4.84% and for January 2008 2.68%

Converting annual yield to monthly return

To make an annual yield, downloaded from FRED Economic Data or Datastream or Bloomberg etc.,  comparable with the monthly return from the downloadable Fama/French factors we need to convert. We could use an Excel formula

4.84% annually – POWER( (1 + 4.84/100), 1/12 ) = 1.003947 – monthly return 0.39%

2.68% annually – POWER((1 + 2.68/100), 1/12 ) = 1.002206 – monthly return 0.22%

[Converting to weekly would be POWER( (1+r/100), 1/52 ) where r is the annual yield
– converting to daily POWER( (1+r/100)/1/250 ) assuming 250 trading days per year]

Key Tip

There are two important steps to finding a good proxy for the risk free rate:

  1. Finding a series that is as close to risk free as possible for the analysis you are doing, and where you have data available for the relevant dates.
  2. Comparing the data you retrieve with the data format you want and converting between an annual yield and monthly/weekly/daily return as appropriate

In academic work, we recomend that you what you have chosen for your risk free rate and any data conversion that you have applied.

For further tips on potential sources, see earlier posts Risk Free Rate for US and US and Risk Free Interest Rate.

Risk Free Rate for UK and US

25 August 2011 31 comments

Note, finding a risk-free rate is complicated not just by the alternative sources available, but also because the risk-free rate required can depend on the context of its use.

  • The most requested is Thomson Reuters3 month Treasury bills, recommended by Thomson Reuters (Datastream) and many others. There is the  most historical data for these. For example the UK, UKGBILL3 (monthly – base date Jan 1972) and UKTBTND (daily – base date 04 Jan 1985). See Risk Free Rates on Datastream (October 2013) for more detail.
  • Fama French benchmark factors are calculated using 1 month Treasury bills, but historical data can be limited. For example, the UK UKTBT1M on Datastream has a base date of 10 Mar 2000.
    See also Risk Free Rate and Fama French factors – posted Jan 2013
  • Bloomberg Bloomberguses 10 year government bond rates as the risk-free rate in its Country Risk Premium (CRP) and related functions. (This makes it easier to handle countries that do not issue Treasury bills in a consistent fashion.)

(For those interested there is a paper “What is the riskfree rate?” on Damodaran Online.)

The last Risk Free Rate post was Nov 2009. These updates have been prompted by queries and also recent news. With the turmoil about the US credit downgrade at the beginning of this month, there is of course debate about what is the risk-free rate if there is a chance of a country defaulting.  For example see:

So what to choose as a good estimate of the theoretical risk-free rate could get harder rather than easier.

Welcome to Business Research Plus

27 July 2011 1 comment

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Risk Free Interest rate

19 November 2009 3 comments

Added: How can I find a historical risk free rate for different countries?

Not too difficult to find rate for US treasury bills (3 month), and several other countries now issue treasury bills. Other alternatives seems to include interbank rates (LIBOR or EURIBOR), extrapolating 3 month figure from government bond yield curve, or repo rate (for countries with liquid repo market).

Thomson Reuters have a useful page, ( DS Extranet-RiskFreeInterestRates.htm  you may need to have access to the Datastream Extranet). Please read the post Risk Free Rates on Datastream (October 2013) as some of the information on this page appears to be out of date.

Other useful pages:

Risk-Free Rate data sources (posted researchfinancial blog Feb 2014)

http://en.wikipedia.org/wiki/Risk-free_interest_rate

http://www.investopedia.com/terms/r/risk-freerate.asp

Update 13 Oct 2014 – other posts on risk free rates