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Chapter 16 Buying bonds, the ideal choice for the public's sound investment (1)
Bonds and their nature and characteristics

Bonds are a kind of securities, which are issued by various social economic entities such as governments and enterprises to bond buyers in order to raise funds, and promise to pay interest regularly at a certain rate and repay the principal at maturity. an important credit tool.Its basic elements are face value, price, repayment period and interest rate.

The face value of a bond consists of two points:
(1) Currency, that is, which currency is used as the measurement standard for the bond value. If it is issued within the country, the currency will naturally be the domestic currency. If it is raised in the international market, it is generally used in the currency of the country where the bond is issued or the currency commonly used internationally. Currencies such as US dollars, British pounds and other currencies are its measurement standards.

(2) The number of tickets depends on the specific situation at the time of issuance.The difference in face value has an impact on the issuance cost, issuance amount and distribution of holders of bonds.The small face value is convenient for small investors with low income to buy, and the market is wider, but the workload of printing and issuing tickets is heavy, which may increase the issuance cost; if the face value is too large, it will exceed the income of small investors. If the scope of ability is limited, the sales area will be narrow, and the buyers can only be limited to a few large investors. Once these investors are not motivated and do not subscribe, it may lead to the failure of the issuance.In addition, the face value is of great significance to the issuer, because the issuer uses this to calculate the interest paid and repay the principal, which directly determines the level of the issuer's financing cost.

The price of a bond is the consensus reached between the buyer and the seller of the bond in the form of currency in the transaction. It depends on the interest rate of the bond, the redemption time and other factors, and is in constant change.At the time of issuance, the price of the bond is not necessarily equal to its face value. It depends on the income and supply and demand of other investment products in the financial market. Sometimes it can be issued at a premium above the par price, and sometimes it needs to be issued at a discount below the par price. .And when it enters the secondary circulation market, the market price of bonds will follow the market.

The repayment period of a bond is the time interval from the date of bond issuance to the date when the principal and interest are paid off.Bonds have different repayment periods, which are generally divided into three categories: one is short-term with a repayment period of less than 1 year; the second is medium-term with a repayment period of more than 1 year but within 10 years; The above is long-term.The repayment period of the bond is mainly determined by the issuer of the bond according to the use of the required funds.

The interest rate on a bond is the ratio of the annual interest payable on the bond to the face value of the bond.The interest rate of a bond is 10%, which means that for every 1 yuan of bonds subscribed, you can get 10% interest every year.The interest rate of the bond is mainly affected by the bank interest rate, the credit status of the issuer, the repayment period, the method of interest calculation and the supply and demand of capital market funds.

Bonds have the following four basic characteristics:
(1) Repayment.Historically, there are only indefinite public bonds or permanent public bonds that do not have a specified maturity date. The holders of such public bonds cannot demand repayment, but can only obtain interest on schedule.All other bonds have strict regulations on the repayment period of the bond, and the debtor must pay interest to the holder on schedule.

(2) Liquidity.Liquidity refers to the ability of a bond to be converted into currency quickly and easily.At present, almost all securities business departments or banking departments have bond trading business, and the various fees charged are correspondingly low.If the issuer of the bond, that is, the debtor, has a high degree of credit, the liquidity of the bond is relatively strong.

(3) Security.Safety refers to the ability of a bond to resist price declines in the market, and generally refers to its ability not to fall below the issue price.Bonds promise to repay the principal and interest when they are issued, so their security is generally higher.Some bonds, although illiquid, are safer because they can be sold for cash or without loss over an extended period of time.Even so, bonds may also be subject to default risk and market risk.The former risk refers to the risk that the issuer of the bond cannot pay the interest or repay the principal fully and on time, and this risk mainly depends on the credit rating of the issuer.Generally speaking, the government has the highest credit rating, followed by financial companies and enterprises.Market risk means that the market price of bonds will fall as the interest rate in the capital market rises, because the price of bonds changes in the opposite direction to the market interest rate.When interest rates fall, the market price of bonds rises; when interest rates rise, the market price of bonds falls.And the farther a bond is from maturity, the more its price is affected by changes in interest rates.

(4) Profitability.The yield of a bond refers to the ability to obtain interest on the bond.Because the risk of bonds is greater than that of bank deposits, the interest rate of bonds is also higher than that of banks. If the bonds can be repaid on time when they mature, they can obtain fixed interest income that is generally higher than the bank deposit interest rate of the same period.

Bonds are a financial tool with low threshold and stable returns, and are ideal for public financial management.Bonds are highly professional and have specific issuers, repayment methods, and interest calculation methods. Understanding relevant knowledge before investing in bonds will help you better use this financial management tool and obtain returns from it.

How to Calculate Bond Yield Accurately
The bond yield is the ratio of the bond's return to the principal invested, usually expressed as an annualized rate.Bond yield is different from bond interest.Because people can buy and sell in the market during the bond holding period, the bond income includes the difference between buying and selling profit and loss in addition to interest income.

When investing in bonds, investors are most concerned about how much the bond will yield.In order to accurately measure bond returns, the index of bond yield is generally used.The main factors that determine the bond yield are the coupon rate, maturity, face value and purchase price of the bond.The most basic bond yield calculation formula is:

Bond yield = (sum of principal and interest at maturity - issue price) ÷ (issue price × repayment period) × 1%

Since the holder may transfer the bond during the bond repayment period, the bond yield can also be divided into the bond seller's yield, the bond buyer's yield and the bond holding period's yield.The respective calculation formulas are:
Seller's rate of return = (selling price - issue price + interest during the holding period) ÷ (issue price x holding period) x 1%

Purchaser's rate of return = (sum of principal and interest at maturity - purchase price) ÷ (purchase price × remaining term) × 1%

Yield during the holding period = (selling price - buying price + interest during the holding period) ÷ (buying price x holding period) x 1%

It may be very blunt to say this, here is a simple case for further analysis:

例如，林先生于21年1月1日以102元的价格购买了一张面值为1元、利率为10％、每年1月1日支付利息的1997年发行5年期国债，并打算持有到22年1月1日到期，则：
购买者收益率＝（1＋1×10％－102）÷（102×1）×1％＝78％

出售者收益率＝（102－1＋1×10％×4）÷（1×4）×1％＝105％

又再如，林先生又于1996年1月1日以120元的价格购买面值为1元、利率为10％、每年1月1日支付利息的1995年发行的10年期国库券，并持有到21年1月1日以140元的价格卖出，则：

持有期间收益率＝（140－120＋1×10％×5）÷（120×5）×1％＝117％

The above calculation formula does not take into account the quantitative factors of reinvestment after earning interest.The reinvested income of the interest earned is included in the bond income, and the calculated rate of return is the compound interest rate of return.

Mastering the calculation method of bond income can make you know the income of investing in bonds, which is helpful for cost control and budgeting of bonds, and better planning for the next step.

Choosing the Best Time to Invest in Bonds

Once a bond is listed and circulated, its price will be affected by multiple factors and fluctuate repeatedly.For investors, they are faced with the choice of investment timing.

How to choose the timing of bond investment?Generally speaking, the principles for selecting the timing of bond investment are as follows:
(1) Before the arrival of the concentration of investment groups, there is a kind of herd behavior in investing in social and economic activities, that is, the activities of a certain individual always tend to converge with the behavior of the majority of people, so as to be recognized by the majority of people.This is reflected in investment activities that funds tend to enter the bond market or flow into a certain product in a relatively concentrated manner.And once a large amount of money enters the market, the price of bonds has already been raised.Therefore, savvy investors should take the first step and invest before the concentration of investment groups arrives.

(2) There is inertia in the movement of chasing ups and downs in bond prices, that is, whether it is rising or falling, there will be a period of time, so investors can invest in accordance with the trend, that is, they can buy bonds when the entire bond market is about to start. And when the market starts to consolidate and will choose to break down, bonds can be sold.The key to chasing ups and downs is to be able to confirm the trend as soon as possible. If the trend is obviously on the verge of turning around before making a decision, it will be counterproductive.

(3) Invest in bonds as a standard interest commodity after the bank interest rate is raised or before it is lowered, and its market price is easily affected by the bank interest rate.When bank interest rates rise, a lot of money will flow into savings deposits, and bond prices will fall; and vice versa.Therefore, in order to obtain higher investment returns, investors should pay close attention to the changes in monetary policy in the investment environment, try to analyze and discover the signal of interest rate changes, and strive to buy in time before the bank lowers the interest rate or after the bank interest rate is raised for a period of time Buy bonds for greater returns.

(4) After the consumption market price rises, the investment price factor affects the bond price.When prices rise, people find that the purchasing power of money has declined, so they will sell bonds and buy real estate, gold and silver jewelry and other value-preserving items, causing bond prices to fall.When the trend of rising prices slows down, the decline in bond prices will also stop.At this time, if investors can have accurate information or have a scientific prediction of the market prospect, they can invest in and buy bonds when people sell them at a discount, and wait patiently for the price to rise, and the investment income will be very considerable.

(5) Seize the opportunity when new bonds are listed. The price system of the bond market is generally relatively stable, and there is often a fluctuation after a bond is newly issued or listed, because in order to attract investors, the price of newly issued or newly listed bonds The annual rate of return is always slightly higher than that of listed bonds, so the bond market price needs to be adjusted once.Generally, the prices of newly listed bonds gradually rise, and the yields gradually decline, while the prices of existing bonds remain unchanged or fall, and the yields rise, and the bond market price reaches a new balance, and the market price at this time is higher than the market price before adjustment. high.Therefore, investors will gain by buying bonds when they are newly issued or listed, and then waiting for a period of time to sell them when the price rises.

The timing of bond investment is very important. If you choose the right timing, you can increase the return on investment; otherwise, the investment effect will be poor or even suffer losses.Therefore, when investing in bonds, pay attention to the information of all parties and grasp the best time to obtain the maximum return.

Investing in bonds requires strategies and skills

At present, my country's bond market consists of three parts: the inter-bank bond market, the exchange bond market and the bank counter bond market. These three markets are independent of each other and each has its own focus.In the bond secondary market, there are mainly the following channels for individual investors to conduct bond transactions.

[-]. National debt

Treasury bonds are bonds issued by the Ministry of Finance to raise funds. They are currently the bonds with the best liquidity and the lowest risk in the bond market.In terms of the form of bonds, the national debt issued by my country can be divided into three types: bearer (physical) national debt, certificate-type national debt and book-entry national debt.Bearer (physical) treasury bonds are a kind of physical bonds, which record claims in the form of physical bonds, with different face values, bearer, no loss report, and can be listed and circulated; voucher-type treasury bonds are a kind of national savings bonds, which are issued by banks and can be reported for loss. Creditor's rights are recorded with "voucher-style treasury bond collection certificates", which cannot be listed and circulated; book-entry treasury bonds record creditor's rights in the form of bookkeeping, and can be registered and reported lost by issuing and trading in a paperless form. In May 20, the last unregistered government bond was due to be paid, marking the complete withdrawal of this type of government bond from the Chinese government bond market. Since then, all government bond issuances have adopted certificate and book-entry methods.At present, book-entry treasury bonds can be circulated in the inter-bank bond market, exchange bond market and commercial bank counter market.

[-]. Corporate bonds
Its characteristics are very similar to national bonds, the biggest difference is that the interest income of corporate bonds needs to pay 20% interest tax.However, after deducting this factor, its rate of return is still higher than that of similar government bonds, making it an ideal choice for investors with small funds.

[-]. Convertible bonds
(End of this chapter)