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Methodology for Risk-free Discount Rates and CPI Assumptions - Updating the Nominal Risk-free Yield Curve and the Short Term CPI Assumptions

Publication Details

  • Methodology for Risk-free Discount Rates and CPI Assumptions for Accounting Valuation Purposes: Updating the Nominal Risk-free Yield Curve and the Short Term CPI Assumptions
  • Published: 22 Feb 2016
  • Status: Current
  • Author: The Treasury
 

Methodology for Risk-free Discount Rates and CPI Assumptions for Accounting Valuation Purposes - December 2015 Updating the Nominal Risk-free Yield Curve and the Short Term CPI Assumptions

Published 23 Feb 2016

The purpose of this paper is to document an update of the nominal risk-free yield curve and a change in the way the short term CPI assumptions are determined.

The Treasury has published the associated Methodology which comprises four papers; the original methodology dated July 2010 and three subsequent papers dated May 2012, June 2013 and December 2015 (this paper). This paper documents an update of the nominal risk-free yield curve (no change in methodology) and a change in the way the short-term CPI assumption is determined under the Methodology. The short term CPI assumption is now based on giving a 50% weighting to the baseline forecast inflation assumption and 50% weighting to the breakeven inflation rate implied by the inflation-indexed bonds.  Short term CPI means up until the end of the nominal risk-free yield curve. In forecasting terms this currently covers both the short term 5 year and medium term 15 year forecasts.

This methodology is not intended to apply to the valuation of traded securities.

This document is available in Adobe PDF format only. An HTML version will be made available in due course. Using PDF Files

Contents

Section/Chapter Download/Page Range

1 Introduction

  • 1.1 Overview of the methodology
  • 1.2 Review of the Methodology 2013
  • 1.3 Ongoing reviews and proposed changes
  • 1.4 Scope of this document

2 Updating the nominal risk-free yield curve

  • 2.1 Approach
  • 2.2 Results

3 Updating the short term CPI inflation assumptions

  • 3.1 Approach
  • 3.2 Forecasters' views of CPI inflation
  • 3.3 Inflation indexed bond yields
  • 3.4 Inflation indexed bond market
  • 3.5 Historical CPI inflation
  • 3.6 Summary
  • 3.7 Determination of CPI inflation assumptions at 31 December 2015
  • 3.8 Updating the short term CPI inflation assumption
disc-rates-meth-unryc-15.pdf (327 MB) pp. (2),i,13
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