Treasury Indexed Bonds are quoted and traded on a real yield to maturity basis rather than on a price basis. This means the price is calculated after agreeing on the real yield, by inputting the real yield to maturity into the appropriate pricing formula.
The pricing formula used for Treasury Indexed Bonds per $100 face value, rounded to the third decimal place except during the last interest period (the period beginning when a Treasury Indexed Bond goes ex‑interest for the second last time) when there is no rounding, is as follows:
where:
v =


i =

the annual real yield (per cent) to maturity divided by 400.

f =

the number of days from the date of settlement to the next interest payment date.

d =

the number of days in the quarter ending on the next interest payment date.

g =

the fixed quarterly interest rate payable (equal to the annual fixed rate divided by 4).

n =

the number of full quarters between the next interest payment date and the date of maturity.



p =

half the semiannual change in the Consumer Price Index over the two quarters ending in the quarter which is two quarters prior to that in which the next interest payment falls (for example, if the next interest payment is in November, p is based on the movement in the Consumer Price Index over the two quarters ending the June quarter preceding).
rounded to two decimal places, where CPI_{t} is the Consumer Price Index for the second quarter of the relevant two quarter period; and CPI_{t2} is the Consumer Price Index for the quarter immediately prior to the relevant two quarter period.

The Ks are indexation factors (also known in the market as 'the nominal value of the principal' or 'capital value'):

K_{t} =

nominal value of the principal at the next interest payment date.

K_{t 1} =

nominal value of the principal at the previous interest payment date.

K_{t1} is equal to $100 (the face value of the stock) at the date one quarter before the date on which the stock pays its first coupon.The relationship between successive K values is as follows:

K_{t} =


Settlement amounts are rounded to the nearest cent (0.5 cent being rounded up).
Worked Example
As an example of the working of the formula consider the 0.75% 21 November 2027 Treasury Indexed Bond for a trade settling on 27 October 2017. Assuming a real yield to maturity of 0.93 per cent per annum the price per $100 face value is calculated to be $98.638.
In this example, i = 0.002325 (i.e. 0.93 divided by 400), f = 25, d = 92, g = 0.1875 (i.e. 0.75 divided by 4) and n = 40. The K value of this bond (K_{t1}) on 21 August 2017 (the previous interest payment date) was 100.00 and the K value (K_{t}) for 21 November 2017 (the next interest payment date) is 100.32. The 0.32 per cent increase in the K value reflects the average increase in the Consumer Price Index over the two quarters to the June quarter 2017.
If the trade was for Treasury Indexed Bonds with a face value of $20,000,000 the settlement amount would be $19,727,600.00.
ExInterest Treasury Indexed Bonds
The exinterest period for Treasury Indexed Bonds is seven calendar days. With exinterest Treasury Indexed Bonds the next coupon payment is not payable to a purchaser of the bonds. In this case, calculation of an exinterest price is effected by the removal of the ‘1' from the term:
in formula (1), thereby adjusting for the fact that the purchaser will not receive a coupon payment at the next interest payment date. The formula in this instance is therefore:
Note that the K_{t }in formula (2) is still the indexation factor on the next interest payment date, even though there is no interest payable to the subscriber or purchaser on that date. That is, this K_{t} continues to apply in the exinterest period.