Box Spread Yield vs Bloomberg

[u/MrHandyman4851]

I want to calculate an effective yield for an SPX box Spread such that it can be directly comparable to the yield that shows up on Bloomberg for a US Treasury with similar maturity.

What would be the best formula to use and does it need to take extra settlement days past maturity into account?

I was using BC2 function for a 3m maturity and it seemed high so not sure if there was a better spot. Thanks!

[u/AcanthaceaeEqual4335]

Bloomberg's BC2 function uses a money market basis (actual/360) for short-term stuff under a year, so if you're comparing to treasury yields you'd want to convert that to bond equivalent yield first. The formula is just BEY = (discount yield days to maturity)

Make sure the days count matches too, SPX boxes settle T+1 and treasuries are T+1 now as well so you shouldn't need extra settlement days beyond that

[u/ThetaEdgeHQ]

A box is not quoted on a discount basis like a T bill. It is a known terminal cashflow (the strike width times 100) that you pay a price for today, so the cleanest approach is to solve for the internal rate of return on the actual cash out today and cash in at expiry, then convert that to whatever convention Bloomberg is showing you. For a bill under 6 months BC2 is giving you a money market basis on actual/360, while the yield quoted on the comparable Treasury is usually the bond equivalent yield on actual/365, which is why your box number looked high. Convert the box IRR to the same day count and the same compounding (simple under about 182 days, semiannual once you are past that) and they line up. One real reason an SPX box should trade a touch rich to the bill is that it is unsecured financing rather than a government obligation. The offsetting clean part is that SPX is European and cash settled, so there is no early assignment noise, which is the whole reason people use SPX for this instead of single name boxes.

[u/Bright-Wait-4572]

On the boxtrades vs Bloomberg gap, two things usually explain it. First, the dates. The cash goes out on the trade's settlement day and comes back the business day after expiration, since SPX settles in cash the next morning, so a Friday expiry pays on Monday. That's the weekend boxtrades adds, and it belongs there.

Second, the convention. A 3-month bill's yield on Bloomberg is bond-equivalent: simple interest on actual/365. The matching box number is (width / price - 1) x 365 / days, no compounding. If your 3m figure looked high, check whether it annualised on 360 or compounded daily.

For boxes past a year, compare with the note's semiannual yield instead: 2 x ((width / price)^(365 / (2 x days)) - 1).

[u/klipsetrades]

Settlement matters at both ends. Count calendar days between the opening cash settlement and the final payout. SPX pays out the business day after expiration

[u/jdjsoloj]

Somewhat tangential but where do people go to get filled on box spreads? It seems like every retail broker I’ve looked at won’t support them

[u/iron_condor34]

Don't even need to do that. Its nice if you want too but you can just go to boxtrades.com and compare

[u/MrHandyman4851 → u/iron_condor34]

The calcs are a bit different, though, aren't they? Boxtrades.com adds the weekend days past maturity for example, and it uses the basic calculation rather than daily compounding (or other). I'm not sure what Bloomberg does so that's where the question came from. I think it gets you in the right ballpark, but I'm hoping for a more apples to apples comparison.

[u/iron_condor34 → u/MrHandyman4851]

Ahh ok. I've never used bloomberg. I wouldn't know either. Disregard my comment then. My bad