Nowadays, most bank wealth management companies invest in bonds on the market, and the rise and fall of products can be said to be closely related to the bond market. So, what is the relationship between "market interest rate" and "bond price"? What are the factors that affect the trend of the bond market? What are the sources of bond returns?
reverse yield and price
Many people believe that bonds are a very stable investment product. Why do negative interest rates appear in foreign countries? Someone also asked: Why do bond prices be low when interest rates are high in the market? The market interest rate is high, shouldn’t the bond price be high?
First of all, the market interest rate is changing, but the face rate of bonds that have been issued is fixed. When market interest rates rise, the face rate of newly issued bonds will also be higher. The face rate of issued bonds will remain fixed, and investors will prefer new bonds. In order to regain the favor of investors, the issuing bonds will make up for the shortcomings of face rate by reducing the bond prices.
The same goes for the other hand. The market interest rate is down. For bonds issued, since the previous issuance, the face value interest rate is higher than the newly issued bonds, and everyone is willing to acquire them at a higher bond price.
When the bond face interest rate is certain, the bond price and market interest rate often show a reverse "seesaw" relationship. It should be noted that the market transaction price of a bond is inversely related to the actual interest rate, not inversely related to the face interest rate.
three major factors affect the bond market trend
Market interest rate is an interest rate determined by the supply and demand relationship of funds in the financial market. We are familiar with the reserve requirement ratio cuts, the reverse repurchase of , and the central bank issuance of notes, etc., are essentially injecting or recycling funds into the market, and further adjusting the market interest rate by adjusting the amount of market funds.
Adjustment method 1: Lower the reserve requirement ratio and interest rate. lowering the reserve requirement ratio refers to reducing the deposit reserve ratio of . A interest rate cut refers to reducing the interest charged on loans. The purpose is to increase the scale of freely flowing funds in the market, thereby reducing the cost of funds in the market, and the market interest rate is relatively downward and the bond market is upward.
Adjustment method two: Central Bank reverse repurchase . The central bank injects liquidity into the market through reverse repurchase operations, which increases the scale of free-flowing funds in the market, thereby reducing the cost of funds in the market, and the market interest rate is relatively downward and the bond market is upward.
adjustment method three: the central bank issue notes. The central bank recovers liquidity to the market by issuing notes, reducing the scale of free-flowing funds in the market, thereby increasing the cost of funds in the market, and increasing the market's capital, with market interest rates relatively rising and the bond market downward.
Bond yields three sources:
①Previous income. refers to the interest paid by the bond issuer to the bond holder on a regular basis during the bond expiration period. For example, if you hold 2,000 yuan of treasury bonds, the face rate is 2.75%, and the interest is paid once a year, the interest received every year is: 2,000*2.75=55 yuan.
②Capital gains . is like buying stocks, the spread income obtained after buying and selling in the market. For example, if you buy a bond with an interest rate of -1% and sell the bond at an interest rate of -2% in the future, you can obtain positive capital gains. If the part of the capital gains obtained can cover the losses caused by negative coupon rates, you can still make money.
③ leverage returns. refers to a strategy for increasing returns - a leverage strategy. If the average cost of leverage is lower than the cost of leverage to purchase bonds, arbitrage can increase returns. On the contrary, if the short-term capital price soars and exceeds the yield of leverage to purchase bonds in the short term, arbitrage will fail.
Understand the impact of the "three tricks" of the Central Bank on market interest rates and the three major sources of bond returns. Can you know the recent bond market trends?
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