Bad Bond Math: An Object Lesson Using Bloomberg’s After-Tax Yields on Market Discount Bonds

Abstract

This note offers an object lesson to demonstrate the challenge facing investors who rely on a “black box” technology to get yield data on bonds. The example uses projected after-tax rates of return presented on a widely viewed Bloomberg page. The problem is that on market discount bonds Bloomberg uses U.S. tax law only on securities designated “U.S. domestic.” On global offerings, Bloomberg does not use U.S. tax law, although this is policy is not apparent to the user. The lesson is that investors need to know how to do the underlying bond math to verify numbers that are reported by data suppliers.