Cai
Sometimes when you pass by the bank at work in the early morning,
you will always see many old men and women queuing up at the bank gate.
guess what they are doing?
Actually, in most cases, they are queuing up to buy government bonds.
bonds are securities issued in accordance with legal procedures for raising funds and promised to creditors to repay principal and interest on the specified date.
You can commonly think that bonds are IOUs that the government, bank or enterprise borrows money from you. This IOU records the amount of the loan, the amount of interest, when to pay it back, how to pay it back, etc.
There are three types of bonds we often come into contact with:
Class 1
convertible bonds
is a bond issued by a listed company that can be converted into stocks.
6 Class 2
Interest rate bond
mainly refers to treasury bonds, local government bonds, government agency bonds, policy financial bonds and central bank bills . The issuers of interest rate bonds are basically states or central government credit as endorsement and the credit rating is the same as the country. It can be considered that there is basically no credit risk.
Class III
Credit bonds
credit bonds are usually issued by enterprises or companies on their own credit. The issuer of credit bonds has almost no national credit as endorsement. Credit risks need to be considered, and there is a "credit spread" between them and interest rate bonds.
Bonds originated from war
Bonds have a much longer history than stocks. According to literature records, bonds first appeared in the slave era. At that time, the public bonds were generated, which was the debt borrowed by the state from merchants, loan sharks or temples. After entering feudal society, public debts were further developed. When emperors or some feudal lords encountered financial difficulties, public debts would be issued. With the development of the economy, many regions have followed this form.
By the end of the 19th century and the beginning of the 20th century, European and American capitalism entered the monopoly stage one after another. In order to consolidate their position, joint-stock companies began to issue large quantities of corporate bonds and created different types of bonds, thus forming today's diversified bond system.
Short story
War is the father of bonds
Ancient Greek philosopher Heraklit said: "War is the father of all causes."
There is no doubt that war is also the father of bonds.
Ancient Greek city-states, and wars frequently occurred between city-states. The war consumes a lot of resources and seriously loses the population, which ultimately reflects the lack of people and wealth. War is about making money and preparing for war. What is important is that before the troops move, food and grass will come first. What should I do if I don’t have enough money?
is the most important thing to make money, what is the fastest way? It's "borrowing" money. Who should I ask for "borrow" it will come faster? Of course, it is to borrow money from your own people.
This is the solution to solve the military shortage of ancient Greek city-states and thus created a bond market.
reverse yield and price
What do you mainly look at when investing in bonds? Rate of return OR price? Asset Management tells you that the yield and price of bonds are inversely related to each other. As long as you know the yield, you can calculate the price. Isn’t not a bond with high yield more investment value, so should it be priced higher?
To help everyone solve their doubts, let us first clarify a few concepts:
Bond price
market trading price.
Coupon interest rate
The interest rate marked on the bond is the ratio of interest in one year to the face value amount, and the fixed interest rate is the time when the bond is issued.
actual interest rate
can be understood as the ratio of the funds you invest in a bond to the income you get (annualized), that is, the actual return on your investment. Although both the coupon rate and the actual interest rate include the word interest rate, they are completely different concepts, because the coupon rate is fixed when bond is issued, and the actual interest rate changes at any time according to market trends.
Give a small example of ●●●
A company issues bonds with a face value of 100 yuan, issuance at a parity of 5%, face value of 2 years, interest payment per year. If an investor A invests 100 yuan of the bond when the bond is issued, if he holds the bond until maturity, he can get 5 yuan interest at the end of the first year and 5 yuan interest at the end of the second year and 100 yuan principal. Therefore, the actual rate of return at this time is 5%.
If as the market situation changes, at the beginning of the second year, investor B is willing to pay 101 yuan to buy the bond from A. This 101 yuan is the market trading price of the bond at this time. Investor B holds the bond in the second year as the actual return is (100+5)/101=3.96%.
Through this case, is it clear that the market price of the bond when it was first issued was 100 yuan, and the actual interest rate was 5%. After a year, its market trading price rose to 101 yuan, while its actual rate of return dropped to 3.96%, showing a complete reverse relationship. In addition, don’t mess with it. The market transaction price of a bond is in the opposite relationship with the actual interest rate, not the opposite relationship with the face value rate. Will there be negative interest rates for bonds in
bonds?
6 Find someone to borrow money. Not only do others not charge you interest, they also pay you money. For example, if you borrow 100, as long as you pay 99, do you believe that there are such good things in the world? These things have really happened in the bond market. In recent years, the interest rate of bond market for euro zone has continued to decline, and many bonds have been issued at negative interest rates.
According to the Financial Times, German multinational daily necessities giant Henkel and French drugmaker Sanofi Vanette issued short-term bonds at an interest rate of -0.05% on September 6, 2016. Among them, Henkel issued 500 million euros in two-year bonds, and Sanofi issued bonds with a three-and-a-half-year term and a scale of 1 billion euros.
bank sources say that the reason why investors are willing to endure negative interest rates is because this "harm" is smaller than buying government bonds or placing funds in bank accounts. Even the Financial Times reporter couldn't help but sigh: Remember this day!
As the saying goes: There is a loan and a return, it is not difficult to borrow again, not to mention that you can still get interest if you borrow. Therefore, it is the credit and investment returns of bonds that support the gradual prosperity of the bond market.Today, Asset Management will take you to understand the basic characteristics of bonds. Next, Asset Management will learn more about the knowledge of bond market and investment with you in more detail, and look forward to meeting in the next issue!
Source: China Merchants Bank Wealth Management
