According to data, the long-term annualized returns of pure bond funds are about 6%. If you master the characteristics of bonds, the returns will be higher. Historical data shows that bonds and stocks have certain negative correlations, that is, stocks fall sharply, bond returns will be better. Bond funds have small fluctuations and stable profits, which are suitable for conservative investors or asset allocation.
Main content of this article:
Bond classification
Bond fund classification
Bond fund income
Bond fund risk
Bond fund bull and bear cycle
Bond fund selection
Bond Fund and Stock Relevance
What investors are suitable for buying bond funds
Bond Fund How to buy
Bond Fund How to deal with losses of bond funds
1, bond classification
bonds are divided into interest rate bonds and credit bonds according to the issuing entity. According to the bond term, it can be divided into short-term bonds (within one year), medium-term bonds (1-3 years) and long-term bonds (more than 3 years). There is also a special type of debt called convertible bonds.
The difference between interest-rate bonds and credit bonds: mainly because of the difference between issuers.
The issuer of interest rate bonds is generally the state, or endorses the credit of the central government and institutions with the same credit rating as the state, such as financial bonds, central bills and treasury bonds.
The issuer of credit bonds is some commercial banks, urban investment companies and other companies, including corporate bonds, corporate bonds, short-term financing bonds, medium-term notes, separation bonds, asset-backed securities, subprime bonds and other varieties. Of course, the former has a low risk, while the latter has a high risk.
2, Bond Fund Classification
Bond Funds are funds that mainly invest in bonds. It is stipulated that more than 80% of the fund assets must be invested in bonds, and a small part of the funds can also be invested in the stock market, convertible bonds, new stocks, etc.
Since each investor has different risk preferences, how should we correctly choose fund products that meet our risk tolerance and investment goals?
Currently, there are few short-term bond funds on the market, accounting for about 10%, medium- and long-term pure bond funds are relatively large, accounting for about 65%, and other secondary bond funds are about 20%.
3, bond fund income
Sources of income mainly come from four aspects:
▼ Interest income
The face interest income of the bond itself is in plain language, in plain words, the interest paid by the borrower, and the borrowers include the central government, local governments, financial institutions, listed companies, enterprises, etc. This part of interest income belongs to a relatively stable source of income in bond funds.
▼ Market volatility returns
Bond trading is similar to stock trading, and is also affected by people's emotions and the surrounding market. The price fluctuates a certain amount, but the bond fluctuations are smaller than stocks. Experienced fund managers will buy and sell securities in the interbank market or Shanghai and Shenzhen Stock Exchanges through the operation of buying low and selling high, thereby obtaining excess returns.
▼ Leveraged income
In order to increase returns, fund managers sometimes perform leverage operations, pledging the bonds they hold to finance, and the funds they have raised continue to invest in the bond market, so that they can obtain leveraged income. When we see that in the distribution of fund assets, bond holdings account for more than 100% of assets, leverage is generally used.
▼ Stock income
Some bond funds participate in stock new stock issuance and hold part of the stock, such as primary and secondary bonds, and can obtain excess returns by buying and selling stocks.
According to historical statistics:
short-term bond funds have a long-term annualized yield of 3%-4%.
long-term annualized yield of long-term bond funds is 5%-6%.
The long-term annualized returns of secondary bond funds containing stock investment are 7%-8%.
According to data, the long-term annualized returns of pure bond funds are about 5% to 7%.
If we invest when the bond fund is at a low level, the returns will be higher.
4, Bond Fund Risk
Bond Fund Risk mainly comes from two: credit risk and interest rate risk.
▼ Credit risk
If a bond held by a bond fund has a debt default, it directly affects the bond yield. According to the bond issuing entities, it can be divided into interest rate bonds and credit bonds. The issuing entities of interest rate bonds are generally governments, policy financial institutions, etc., and the risk of default is extremely low. The entities of credit bond issuance are generally listed companies and enterprises. Compared with the government, there is a risk of default. For example, a small number of listed companies defaulted on their debts in 2019, but after all, it is still a minority. Relatively speaking, the risk of bond funds is relatively low. Fund managers will avoid companies with default risks through professional analysis and diversify risks through diversified investments.
▼ Interest rate risk
The performance of the bond market is mainly related to market interest rates. The longer the bond fund is, the greater the impact of interest rates. Compared with short-term bond funds, long-term bond funds also fluctuate more in the bull and bear market. How do you understand this sentence? If the market interest rate rises, then the yield of the bonds originally held will drop relatively. The bonds are attractive and will be sold, and the bond prices will fall until the price is attractive enough to reach a balance, and vice versa. Different bonds are affected by interest rates. For bond funds, the longer the duration of bond funds, the greater the impact of the interest rate received by bonds. What is duration means the average maturity time of bonds held by bond funds. What we usually talk about is short-term bond funds and long-term bond funds, but in fact, they are talking about duration. As market interest rates rise, the decline of long-term bond varieties is higher than that of short-term bond varieties. On the contrary, if market interest rates drop, the increase in long-term bond varieties will also be higher.
I think the picture below is more vivid and deepens my memory. (Bonds are like a car, interest rates are like roads, and the remaining term of the bond is like the length of the body. The longer the body, the more sensitive it is to respond to interest rates, especially when it is downhill. However, if it is changed to the climbing stage of interest rates, it may cause a chassis or even a car accident)
Bond funds mainly invest in bonds including treasury bonds, financial bonds and other bonds. These bonds have stable returns and are less risky, so bond funds have less risk. Compared with other types of funds, the risk is from small to large: money funds <>
5, bond funds bull and bear cycle
CSI All Bond Index in the past five years, with an annualized yield of 4.7% in five years. CSI All Bond Index is a cross-market bond index that comprehensively reflects the interbank bond market and the Shanghai and Shenzhen Stock Exchange bond markets. If the fund manager screens the combination, the long-term yield of bond funds is far higher than 4.68%.
Although there is low risk and low return, the bond market still has a bull and bear market. The following figure shows the returns of the CSI All Bond Index in each year. In 2008, CSI's total bonds obtained a 15.94% return, but in 2007, it lost 2.41%. Therefore, although the bear market will not shrink the principal too much, it will still lose the opportunity cost of funds; it can also obtain considerable returns in bull markets.
According to statistics in the past 10 years, the largest decline in the CSI All Bond Index was 5.6%, far lower than stock volatility. The annual annual increase and decrease of CSI bonds in the figure above shows the largest decline in one year is 2.41%. This decline is calculated based on the natural year, while the 5.6% decline above is calculated based on the time of breaking the natural year.
Look at the China Securities Enterprise Bond Index (code 399481), which is composed of corporate bonds listed on Shenzhen and Shanghai Stock Exchanges and meet certain conditions, reflecting the overall performance of corporate bonds. The risk of corporate bonds will generally be higher than interest-rate bonds and will also be greater.
This is the monthly trend chart from 2003 to the present. It can be seen that corporate bond index has experienced 5 bull and bear markets in the past decade. The bull and bear market in the bond market is much shorter than the bull and bear market in the stock market, basically every 2-3 years. Moreover, the bear market cycle in the bond market is not long. The lengths of these five bear markets are 7 months, 20 months, 9 months, 12 months and 6 months respectively. That is, the average bear market length is 10.8 months. In these five bear markets, the largest declines of the enterprise bond index were -12%, -8%, -5%, -6%, and -3%, respectively.
6. Timing of bond funds
mentioned above that bond funds have interest rate risks and have certain cycles. So when will we buy and sell bond funds?
Since the performance of the bond market is mainly related to market interest rates, we will determine the timing of bond investment based on the performance of the market interest rates.
Just said that when the market interest rate rises, bond yields will decline, and when the market interest rate falls, bond yields will rise. So how to judge the market interest rate? We can refer to the 10-year treasury bond yield (can be checked on Baidu or links through this website), refer to the 10-year treasury bond maturity yield. In the year when the treasury bond yield falls unilaterally, the annual yield of CSI's total bond is higher, and the treasury bond yield rises unilaterally, the annual yield of CSI's total bond is lower or negative, and has obvious average regression characteristics. Therefore, when the treasury bond yield is relatively high and the probability of falling, you can allocate bonds, and when the treasury bond yield is relatively low and the probability of going up, you can consider selling. From this we can see that the yield fell in 2018, and the yield of bond funds reached about 8% in the same year.
The above chart shows the trend of ten-year treasury bonds in the past nine years, with a low of 2.74% and a high of 4.63%. The main fluctuation range is 3%-4%, and the central axis is about 3.5%.
When the interest rate of ten-year treasury bonds is above 3.5%, which is usually the high interest rate. There will be downward pressure in the future, and invest in medium- and long-term bond funds. When the interest rate of ten-year treasury bonds is between 3.5% and 3.0%, it is a low interest rate, and it is suitable to invest in short-term bond funds, because the room for interest rates to decline is already very small at this time. Of course, it is also possible to allocate money funds and bank monetary financial management at this time.
When the interest rate of ten-year treasury bonds is less than 3%, bond funds should be cleared because the risk-return ratio of allocated bond funds is already very low at this time.
Note that the above three sentences are the basic logic of investing in bond funds. The market environment is complex. You must make decisions based on specific situations and avoid copying them.
7, Bond Funds and Stock Correlation
Historically, bonds also have certain negative correlations with the stock market, or seesaw effect. During the past 12 years, when the stock market was down, bond funds have had considerable returns on investment over the same period. Bonds are an indispensable part of cross-cycle asset allocation.
From the above table, we can see that when the stock market falls, the bond market returns are often good, but not absolute. The basic logic is this: the economy is cyclical. When the economy improves, the stock market rises sharply, and then the economy is overheating, the stock market will also be crazy. In order to curb the economy overheating and reduce inflation, the country adopts a tightening monetary policy, which ultimately increases market interest rates, rises and bond yields fall. When the economy is too sluggish, the stock market industry is often not good. For example, in 2018, the country will also introduce policies to stimulate the economy, which will be loose from time to time, and market interest rates will fall. From the above ten-year treasury bond yield trend, it can be seen that in 2018, the interest rate will fall, and bond yields will rise. In 2018, the bond yield is generally relatively high, reaching an average of 8%.
8. Which investors are suitable for buying bond funds
▼ Investors with low risk preferences and pursuit of stable
Comparing the volatility of stocks and bond funds, you can see that stocks are ups and downs, with high volatility, while bond funds grow steadily and slowly, with low volatility. If you do not want to bear the high risks of big ups and downs, and pursue higher returns than money funds, bond funds are a good choice.
▼ To reduce portfolio volatility
The bond market and the stock market are a seesaw. Generally speaking, when the stock market is not good, the bond market will usher in a market. If a portion of bond funds with stable returns are allocated to the portfolio, the volatility of the portfolio can be appropriately reduced and the role of a stabilizer.
9. How to buy bond funds
Bond funds are both on-site and off-site. They are purchased on-site through ordinary securities accounts. Off-site can be purchased through multiple channels, including various APPs such as Alipay.
Please pay attention to choosing bond funds. The fund size should not be less than 100 million. If the scale is too small, it will be greatly affected by the inflow and outflow of funds, and performance will easily fluctuate.
bond funds can be found through websites such as Tiantian Fund and Morningstar. Through the selection of conditions, such as choosing long-term pure bonds, hundreds of funds can be found. Any fund you choose to click in can see the specific fund size and position status.
For the convenience of choice, some funds are recommended here.
short-term bond fund: Dacheng Jing'an Short-term bond (002086); Jiashishi Ultra-Short Bond (070009); E Fund Anyue Ultra-Short Bond A (006662)
long-term bond fund: Bose Credit Pure Bond Fund (050027); GF Pure Bond A (270048);
first-tier bond fund: Bank of China Steady Profit Increase Bond;
second-tier bond fund: Morgan Stanley Earning Bond A (233012), ICBC Double-Enterprise Bond A.
10. How to deal with the losses of bond funds
First of all, the fluctuations of bond funds are relatively low. In the long run, the returns are higher than ordinary bank wealth management. As mentioned earlier in the article, the lowest year of the total bond index was only a 2.4% decline. Bond funds suffered losses, and the loss rate was difficult to exceed 5%. If the bond funds held are losing money, there may be two reasons: the first is that the current market interest rates have risen, which has led to the general performance of the bond market. The second is the investment error of the fund manager of this bond fund. Most of the reasons for the losses belong to the former.
After buying a bond fund, if the market interest rate rises, causing the bond fund you hold to lose, the solution is divided into two situations:
First, if the short-term bond fund is held, if the market interest rate rises relatively high, you can switch the short-term bond fund to a long-term bond fund and wait for the interest rate to fall, because the interest rate changes cyclically, the short-term bond fund falls less during the interest rate rise cycle, and the long-term bond fund rises much more during the interest rate decline cycle. This is a perfect fit. The long-term bond foundation makes up for the decline in short-term bond funds.
The second investment is the long-term bond fund. As long as the bond fund is operating without any problems, it can continue to invest and replenish positions and dilute costs. The general bond market will be a bull-bear market for two or three years. Most of the time, it will be profitable after one year of investment, at most two years. Cooperate with the decline, fixed investment will contribute to low costs, and profits will come sooner
Source: Tonghuashun Financial Research Center
Follow Tonghuashun Finance WeChat official account (ths518) to get more financial information
