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Chapter 1
Introduction
The bond markets in Europe and elsewhere have developed independently with inevitably different
conventions for calculating prices, yields and interest rates and settling the various instruments. With
the ever increasing amount of cross-border trading it is desirable that people should be able to
compare accurately the markets in one country with another and agree the cost of the transactions.
The purpose of this book is to help in the process.
The practices of the individual markets are constantly changing and these changes are tending to make
the markets more homogeneouspartly due to the influence of the G30 recommendations, but more
significantly, due to the greatly increased amount of cross-border trading and the advent of the euro.
Examples of this are the wide acceptance of the ISMA yield methodology, which is included in the
Maastricht treaty, and the standard money market yield calculation. Similarly, there has been a move
to settling bond transactions internationally, in many European domestic markets and in the U.S.
corporate market on a T + 3 basis (i.e. 3 business days after trade date).
However, the different bond and money markets still continue to accrue interest on a variety of bases,
to trade ex-coupon for different periods etc. For example, currently in France, the money markets
accrue interest on a 360-day year basis, whereas the bond markets accrue on a 365/366-day year. The
situation is reversed in Italy, with the money markets accruing interest on a 365-day year and the bond
markets on a 360-day year.
It should be noted that, whilst every effort has been made to establish the validity of the data, the
constantly changing nature of the markets inevitably creates a potential for errors and omissions, for
which neither the author or publisher can accept liability.

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