blender
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Post by blender on Jan 15, 2015 15:49:51 GMT
This is a first for me. Checking the earlier tranches of a new property tranche I find that for loan 7349 there are 227 loan parts for sale, and that one £40 part, selling at par, has a buyer rate of 8.1%, while every other loan part at par has a buyer rate at 8% - the interest rate. Is there occasionally a golden loan part which is slipped, Wonka-esque, in among the ordinary parts for some lucky lender? Or is this a new manifestation of a display issue - where £20 parts are often shown as 7.9%. If nothing else, the display issue gets the part to the top of the pile to be picked up by a manual bidder, soon to be disappointed.
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sl75
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Post by sl75 on Jan 15, 2015 16:25:50 GMT
This is a first for me. Checking the earlier tranches of a new property tranche I find that for loan 7349 there are 227 loan parts for sale, and that one £40 part, selling at par, has a buyer rate of 8.1%, while every other loan part at par has a buyer rate at 8% - the interest rate. Is there occasionally a golden loan part which is slipped, Wonka-esque, in among the ordinary parts for some lucky lender? Or is this a new manifestation of a display issue - where £20 parts are often shown as 7.9%. If nothing else, the display issue gets the part to the top of the pile to be picked up by a manual bidder, soon to be disappointed. Interesting... It also appears to be the only £40 loan part available (perhaps because they're "golden" today?). I would note that the price of £40.22 would, in relative terms, be equivalent to £100.55 for the £100 parts, but these actually have a sale price of £100.56, so the system is correctly showing it as "a better deal for the buyer"... although that doesn't make it entirely clear why the £20 parts (at a sale price of £20.11) are not similarly inflated - perhaps the total value of the remaining repayments on the £40 loan is a penny more than the repayments on 2 x £20 parts? Edit: if it's still there at midnight, perhaps it'll drop back to 8.0%?
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Post by GSV3MIaC on Jan 15, 2015 17:25:28 GMT
I think it's just another side of the well known rounding issue .. the IRR calculation used to get to the buyer rate is ludicrously sensitive to the odd penny of interest, or penny of upfront payment, or even the timing of the income stream .. I am never quite sure how much detail FC have put into their (iterative) solver back on the servers .. i.e. do they allow for the fact that the Feb31st re payments, if there were any, are going to appear 3 days early most years?? Yep, even that can affect the answers. And then they truncate (unless thy have fixed that?) the answer to 1 decimal place, always down. Working only to whole pennies on £20 parts with rates of 7%-8% is always going to give sporadic errors (compared to larger parts &/or higher rates).
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blender
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Post by blender on Jan 15, 2015 17:40:42 GMT
As you know, the odd pennies in the price are the monthly interest to date, and the figures are approx pro-rata the principal. Because the buyer has to pay it out straight away but gets it back at the end of the month, there should be a very small reduction in buyer rate - I am assuming the roundings of the interest payment are not important to the calculation of the buyer rate and that the higher listing is due to 8.1% buyer rate rather than 8.0%. I wonder how often the buyer rate is calculated during the life of a loan part. Obviously (or is it?) FC could not afford to re-calculate the buyer rate each time a loan part is presented for sale - but within the 14 days life, with premium/discount fixed, the buyer rate re-calculated could change by 0.1% or more for a fixed premium. Is the buyer rate fixed for 14 days by the calculation made when it is first listed?
These are FC mysteries - to me.
Setting aside a glitch in the calculation on this one when first put up for sale, and assuming all £40 parts of that loan are gilt, I find it hard to get to 8.1%. GSV has said elsewhere that the figure is truncated on display rather than rounded properly (sorry if misremembered). If that is so you can see how 7.99% calculated becomes 7.9% - and we see a lot of that on £20 parts. But you could not make 8.1% that way on an 8% loan without a calculated figure of at least 8.1%.
Curious.
Edit. Had not seen your post, GSV. If it is truncated, how do they get to 8.1% for an 8% interest only loan? I still have loads of £20 parts at par on other loans at 7.9% instead of 8%.
Edit 17.58 Now there are two of them! It is systematic and not a glitch. We have a new system bug.
A check shows that it is happening on some property loans with 8 months to go - but not all. And it is always the £40 loan parts.
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