Bonds investment that everyone should understand.
Practical tactics of bond investment transaction
01. Why buy bonds? What's the difference between it and stocks?
Credit and debt documents issued by the government, financial institutions, industrial and commercial enterprises and other institutions to investors in accordance with legal procedures and agreed to repay principal and interest within a certain period of time belong to a kind of marketable securities. Bonds provide investors with a fixed return and principal recoverable at maturity. Compared with the skyrocketing and plummeting stocks, the market price changes less, the expected return is relatively stable, and the risk is lower.
Regular interest: bonds usually pay dividends twice a year. The holder of the bond may receive interest on time during the period of holding the bond.
Protect the principal: bonds usually have a clear maturity date, and the issuer will repay the principal on the maturity date.
Risk diversification: adding bonds to your portfolio can help reduce portfolio volatility.
02. Introduction to the types and characteristics of bonds
Fortune will soon launch nearly 20 corporate and financial bonds, providing users with the opportunity to trade bonds online.
03. Bond product description
Take BOC aviation leased bonds as an example:
1) the face value of the bond: including two basic contents: currency and par value. The amount to be repaid when a bond matures.
2) coupon rate: the interest rate of the bond is generally the annual interest rate, and the annual interest rate can be obtained by multiplying the face value by the interest rate.
3) term and interest payment cycle: maturity refers to the time between the issuance of the bond and the repayment of the principal. The interest payment cycle can be semi-annual or annual.
4) Bond price: including the issue price and the market price, the issue price is generally the same as the par value.
Market price refers to the transaction price in the secondary market. Each market maker will offer different prices, including buying and selling prices. (similar to foreign exchange trading)
04. Bond transaction
The trading place and mode of the bond secondary market
Unlike the stock market, there is no centralized place for bond trading. The vast majority of stocks are traded through the exchange, while bond trading is divided into two categories: over-the-counter and over-the-counter.
1) Exchange market: the scale is relatively small and the transaction cost is high.
2) over-the-counter market: the transaction scale is huge, the variety is rich, and the cost is low.
Most of them are over-the-counter OTC transactions.
Transaction method:
1) the main transaction mode for individual customers is to complete the transaction by means of bank and securities firm and telephone inquiry.
2) there are also some securities firms and distribution platforms that have set up electronic transactions, such as FSM,Saxo to provide users with online transactions.
Basic concepts related to transactions
1) net buying price / selling price
Regardless of the accrued interest, the market price of the bond. The price offered by each market maker will be different. For example, China Evergrande Group bonds:
Purchase price: $96.711 USD is the price at which a customer sells a bond to a market maker.
Selling price: $97.795 USD is the price at which a customer buys a bond from a market maker.
In particular, it is important to emphasize that the buying / selling price here is only a reference price. Since bonds are traded in the over-the-counter market (OTC), orders placed at the reference price may not be closed, and it is necessary to wait patiently for counterparties who are willing to close the deal at this price.
Suppose Niuniu bought an one-year corporate bond with a face value of 100 yuan at the beginning of the year with a coupon of 5%, while the bank deposit interest rate was 3% at that time. A year after the maturity date, Niuniu will be able to get 105 yuan with interest.
A month later, Niuniu suddenly used the 100 yuan urgently to sell the bond. But it comes as bank interest rates rise to 5%. The interest rates of banks and bonds are about the same, and of course no one is willing to take the risk to take over bullish bonds.
Niuniu was in a hurry to sell, so it had to be sold at a low price.
As a result, interest rates rise and bond prices fall.
It was thought that lower interest rates would not be a good thing, because yields on traditional wealth management products would all fall as a result, but in the bond market it is just the opposite.
Sure enough, there is a magical force in the bond market.
2)Accrued interest
If A sells the bond to BMague B, it will receive the next interest on the bond in full, so B will have to pay the accrued interest to A.
3)Buy full price / sell full price
Full buying price / selling full price = net buying price / selling net price + accrued interest
Full selling price: the price at which you buy a bond from a bank, including accrued interest. Multiplying this price by the principal plus the handling fee is the money you have to pay for the bond.
When holding bonds, the interest allotment received each time is equal to the compensation for the holding period.
For example, Baidu, Inc. corporate bonds have an interest rate of 3.62%. They pay dividends twice a year and pay interest once every six months.
The last interest allocation is July 6, 2020, and the next one is January 6, 2021, assuming it changes hands on September 6.
Then those who bought bonds on September 6 will get the full half-yearly interest rate at the next interest rate distribution, that is, January 6, 2021.
But in the past period from July 6 to September 6, it was the previous investor who held bonds, and he deserved the interest allotment for that two months.
Therefore, when the bond is traded on September 6, the buyer will first pay the seller the interest of these two months, that is,Accrued interest (Accrued interest).
Accrued interest= coupon annual interest rate * 100amp 2* actual number of days from interest date to delivery date / actual number of days from interest date to maturity date.
If you buy 100 yuan of this bond today and the price is 110 (net purchase price), then:
Accrued interest= 100 yuan 3.62% Universe 2 million 60 pounds 180 yuan 0.6033 yuan
Buy full price= 1100.603300110.603 yuan.
4) nominal value
Nominal value = par value * number of bonds
In bond trading, the nominal value is used as the quantity to trade.
For example, if you want to buy 2 bonds with a face value of 100, you are buying bonds with a nominal value of 200.
5) annualized return on maturity YTM
Make the present value of the cash flow generated by the investment equal to the interest rate of the investment price (or cost). Mathematically, the internal rate of return y satisfies the following equation
Cash flow of year t of CFt--
Pmure-the price of buying bonds
Nmura-number of years
For example:
If the purchase price of a bond is 903.10, the maturity is 3 years, the face value is 1000, the coupon is 10%, and the interest payment period is 1 year, then IRR is the y that makes the following equation valid.
6) Market value of position
Market value of client bonds = number of shares of bonds held by clients * (net intermediate price + accrued interest)
05. Why invest in bonds in Futu?
1) Futu supports online bond trading, which is easy to operate and has a good experience.
2) Futuo charges more favorable fees than traditional traders.
