Directory
01 Bond Overview
02 Return Risk
03 Variety Subdivision
04 How to purchase
01
Bond Overview
Bond Overview
Bonds are securities issued in accordance with legal procedures for debtors such as governments, enterprises, banks, etc. to raise funds and promise creditors to repay principal and interest on the specified date.
bonds can be divided according to various factors such as the issuing entity, guarantee status, interest payment method, fundraising method, bond pattern, etc., but they are mainly divided into interest rate bonds and credit bonds according to the credit degree of the issuing entity.
＊Endorsement:
originally refers to writing a signature on the back of the bill as a procedure for transferring the bill's rights, and later extended to the meaning of guarantee and guarantee. If the issuer fails to fulfill his repayment obligation, the endorseor must bear the liability for repayment. Interest rate bonds are guaranteed by the state, and it is generally believed that there is no credit risk, while credit bonds will have credit risk.
Generally speaking, when the economic situation is not good, due to concerns about the possibility of credit bond default, the demand for interest-rate bond allocation by market funds will increase; on the contrary, when the economic situation is good, the demand for relatively high yields of credit bond allocation by market funds will increase. But this is not absolute. If it is an investment portfolio, it also depends on other factors such as holding ratio, risk preference, capital cost and other factors at that time.
02
Return risk
Bond return
For financial management novices, when they see the characteristics of bonds "repay principal and interest when they are maturing", they may think that it is the same as depositing money in the bank. In fact, this is not the case. If we use the mindset of time deposits to understand bonds, then we will underestimate it too much. What parts does the bond's return consist of?
example:
You borrow 10,000 yuan to a company. The company has agreed on the IOU to you for 2 years and the interest rate is 7%. A year later, the market conditions were good, so you increased the price and transferred the IOU to someone else for a price of 10,400 yuan. At this time, you will get two parts of the profit. The first part is the 7% interest income you earned on holding this IOU over the past year, and the second part is the 4% spread income you earned when you transfer it to someone else.
So the bond's income includes coupon income and capital gains income .
Coupon income
Income from interest by holding bonds
Capital gains income
Bonds, like stocks, can earn income from price fluctuations through trading. When the bond has not matured, if the trading price soars, you can still make a difference by selling it.
Since the price of a bond is not static, what are the impacts on the price of a bond? There are four main aspects.
1)Prepayment period
The shorter the repayment period of a bond, as it gets closer to the redemption date, the bond price will gradually converge to the face value.
2) Coupon Interest Rate
The higher the face rate of a bond, the greater the return on maturity, so the higher the bond's selling price. The lower the face rate, the lower the bond price.
3) Market interest rate
When the market interest rate drops, bonds with higher face interest rates are more popular with investors, and the bond price will also rise accordingly, resulting in a premium. When market interest rates rise, bond prices fall accordingly.
Example:
When the market interest rate drops from 5% to 3%, then the bond interest rate 5% is very attractive compared to the market interest rate 3%. (With other factors unchanged) More funds will want to buy this bond, causing supply to exceed demand and driving bond prices to rise.
4) The credit level of an enterprise
If the bond issuer has a high credit level, the risk of the bond will be smaller, and therefore the price will be higher. If the credit level is low, the bond price will be low. Therefore, the price of treasury bonds is generally higher than that of financial bonds, and the price of financial bonds is generally higher than that of corporate bonds.
Bond risk
There is profit, there is risk.
coupon income and capital gains income correspond to two major basic risks: interest rate risk and credit risk.
Interest rate risk
There are few situations in the market where a bond is held from the issuance date to the maturity redemption date, so investors will buy and sell before maturity. Changes in interest rates will bring risks of changes in bond prices.
Credit risk
The risk that the bonds invested in cannot repay principal and interest on time. No matter how low the bond risk is, "rigid redemption" does not actually exist in the bond market.
example:
In 2019, there were 682 negative events in the bond market, involving 5,416 surviving bonds, of which 265 have been substantially defaulted; the balance of 4.73 trillion yuan of surviving bonds, of which the balance of 233.1 billion yuan of debt has been substantially defaulted.
This is also why most stable investors generally choose Treasury bonds as bond allocation, because the credit risk is so low that it can be ignored. But if you really want to contact bonds other than treasury bonds, then you must understand who is the issuing entity of this bond? Where does the funds flow? Credit rating? You need to have a basic understanding of various bond varieties.
03
Variety subdivision
Each bond involves a different issuing entity and capital use, so there are many types, which can be roughly divided into the following types:
Bond variety Issuing entity and definition
Treasury bonds The central government guaranteed bonds issued by the state
Central bank bills The central bank's short-term debt certificates issued by the central bank's excess reserve issuance of commercial banks
Local government bonds The local finance guaranteed bonds issued by the local government
Policy financial bonds The central bank's policy-based financial bonds issued by the local government
Policy-based financial bonds Policy Bank Bonds issued by the central bank to financial institutions approved by the State Council
Government-supported institutional bonds/government-supported bonds Huijin Company/China Railway Corporation
Commercial Bank Bonds The interbank issue of commercial banks is mainly divided into ordinary bonds, subprime bonds, special bonds
non-bank financial institution bonds Securities corporate bonds, insurance companies, large central enterprise financial companies, asset management companies, futures companies, financial leasing companies, etc.
corporate bonds Most are central state-owned enterprises or state-owned holding enterprises
corporate bonds Most are listed companies or non-listed public companies
Panda bonds RMB bonds issued by international institutions in China
non-financial corporate bonds
non-financial corporate bonds
non-financial corporate bonds
non-financial corporate bonds
non-financial corporate bonds
non-financial corporate bonds CP/MTN/SMECN/SCP/PPN/ABN issued by non-financial enterprises in the interbank bond market
interbank deposit certificates issued by deposit financial institutions in the national interbank market
convertible bonds and exchangeable bonds Under certain conditions, bonds that can be converted into bond issuing company stocks, equivalent to a combination of bonds and options
Asset-backed securities ABS, banks securitize credit assets, enterprise custody assets, insurance assets and members of the traders association
private equity corporate bonds Financial institutions or asset management companies help small and medium-sized enterprises issue privately
municipal investment bonds Local investment and financing platforms are generally publicly issued for local infrastructure construction or public welfare projects, mostly corporate bonds and medium-term notes
industrial bonds Credit bonds used for industrial projects other than municipal bonds
We evaluate our ability to bear by referring to the substantive content of each bond, and finally choose a type that suits you for single or matching investment.
04
How to buy
I finally have a general understanding of bonds, so where should I buy bonds?
Purchase method
Exchange purchase
Individual investors need to first open a stock or bond account in the securities company's business department to buy and sell bonds circulating on the exchange, such as corporate bonds, corporate bonds, convertible bonds, book-based treasury bonds, etc., and can also realize the price difference of bonds.
is the same as buying stocks. Just enter the bond code, purchase price and quantity.
Bank counter to purchase
Individual investors need to go to the bank to open an account before buying and selling directly. Currently, the banks can purchase generally include treasury bonds and local bonds.
Entrusted to purchase
Some bond varieties cannot be purchased as individual investors, so they can entrust financial institutions to purchase, such as bond funds and bank financial products.Bond funds can invest in treasury bonds, financial bonds, corporate bonds and convertible bonds, while bank fixed income products can invest in a wider range, including treasury bonds, policy bank financial bonds, central bank bills, short-term financing bonds and other bonds.
Purchase threshold
Generally speaking: the minimum threshold for personal investment is 1,000 yuan. The face value of a bond is 100 yuan, and the minimum trading unit is 10 in one hand.
In addition: the investment threshold for treasury bond reverse repurchase on the Shanghai Stock Exchange is 100,000 yuan, increasing by an integer multiple; the investment threshold for treasury bond reverse repurchase on the Shenzhen Stock Exchange is 1,000 yuan, increasing by an integer multiple.
Investment period
Bonds have maturity, so the investment period will not exceed the maturity period of the bond.
bonds are basically very liquid, and they are traded in T+0, so they can be sold on the day of buying.
Trading fee
Tax and fee
Interest income tax is 20% (except for government bonds), stamp duty is exempted
Processing fee
Different institutions are different, far lower than stock trading commission
Conclusion
Overall, when individuals invest in bonds, they should carefully choose the types of bonds. The types of bond investments are complex and diverse, and the risks involved are also different. Listen to professional advice from all parties and don’t blindly enter the market.
Source: Tonghuashun Financial Research Center
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