DEFINITION of 'Bank Discount Basis'

A quoting convention used by financial institutions when quoting prices for fixed-income securities sold at a discount, particularly U.S. Government issues. The quote is presented as a percentage of face value, and is determined by discounting the bond by using a 360-day-count convention, which assumes there are twelve 30-day months in a year.

Also referred to as "discount yield".

BREAKING DOWN 'Bank Discount Basis'

Differences in the day count convention used by the firm quoting a fixed-income security is subtle, but important. Over longer maturities, the day count convention will have a greater impact on the current 'price' of a bond than if the time to maturity is much shorter.

The 30/360 day-count convention is the standard when quoting government treasury bonds for banks.

RELATED TERMS
  1. Yield Basis

    The yield basis is a method of quoting the price of a fixed-income ...
  2. Discount Bond

    A discount bond is a bond that is issued for less than its par ...
  3. Bond Quote

    A bond quote is the price at which a bond is trading, typically ...
  4. Pure Discount Instrument

    A pure discount instrument is a type of security that pays no ...
  5. Discounted Future Earnings

    Discounted future earnings is a method of valuation used to estimate ...
  6. Conventional Cash Flow

    Conventional cash flow is a series of inward and outward cash ...
Related Articles
  1. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  2. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  3. Insights

    What if Republicans Hold a Brokered Convention?

    History shows anything can happen once the second – or 36th – ballot is cast, from a win for the front-runner to a nomination for the zero-delegate.
  4. Investing

    The Cost of Shale Oil Versus Conventional Oil

    Fracking technology has brought new costs to the oil extraction process, and that has an impact on the profitability of the deposits being drilled.
  5. Managing Wealth

    How Bond Prices and Yields Work

    Understanding bond prices and yields can help any investor in any market.
  6. Investing

    What are Fixed-Income Securities?

    For a fixed-income security, the periodic return on the investment is the same throughout the life of the security. Principal is returned at the time of maturity. The payment can be in the form ...
  7. Investing

    4 Types Of Money Market Yields

    Learn to calculate, and discover the difference between the 4 types of yields; bank discount yield, holding period yield, effective annual yield, and money market yield
RELATED FAQS
  1. How does proration affect asset depreciation?

    Learn how different proration or applicable convention methods such as half-year, mid-quarter and mid-month affect asset ... Read Answer >>
  2. What's the Difference Between FHA and Conventional Loans?

    Conventional mortgages require higher credit scores than FHA mortgages. Read Answer >>
  3. How can I calculate the carrying value of a bond?

    Learn what the carrying value of a bond means, how it can change, and the easiest way to calculate a bond's carrying value ... Read Answer >>
Hot Definitions
  1. Receivables Turnover Ratio

    Receivables turnover ratio is an accounting measure used to quantify a firm's effectiveness in extending credit and in collecting ...
  2. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  3. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  4. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  5. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  6. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
Trading Center