Bonds and national debt

Bonds are creditor's rights and debt certificates issued to investors by national or local governments, financial institutions, enterprises and other institutions when they directly raise funds from the society, and promise to pay interest at the agreed interest rate and repay the principal according to the agreed conditions.

Bonds include the following meanings: first, the issuer of bonds is the borrower of funds; Second, investors who buy bonds are lenders of funds; Third, the issuer needs to repay the principal and interest according to the conditions agreed in the bond; Fourth, bonds are proof of debts and have legal effect. There is a creditor-debtor relationship between bond buyers and issuers. The bond issuer is the debtor and the bondholder is the creditor.

Although there are many kinds of bonds, they all need to contain some basic elements in content. These elements refer to the basic contents that must be stated in the bonds issued, and are the main agreements that clarify the rights and obligations of creditors and debtors, including:

The face value of bonds refers to the face value of bonds, which is the principal amount that the issuer should repay to the bondholders after the maturity of bonds, and is also the calculation basis for enterprises to pay interest to bondholders on schedule. The face value of bonds is not necessarily consistent with the actual issue price of bonds. If the issue price is greater than the face value, it is called "premium issue"; if it is less than the face value, it is called "at discount" and the equivalent issue is called "parity issue".

The repayment period of principal refers to the repayment period of bond principal stipulated in the bond, that is, the time interval between the issuance date and the maturity date of the bond. The company should determine the repayment period of corporate bonds in combination with its own capital turnover and various factors affecting the external capital market.

Interest payment cycle refers to the time when an enterprise pays interest after issuing bonds. It can be paid at one time, or 1 year, half a year or three months. Considering the time value of money and inflation, the interest payment period has a great influence on the actual income of bond investors. The interest of a bond that pays interest once at maturity is usually calculated at simple interest; For bonds that pay interest in installments during the year, interest shall be calculated according to compound interest.

Bond coupon rate refers to the ratio of bond interest to bond face value, which is the calculation standard of the remuneration that the issuer promises to pay to the bondholders in a certain period. The determination of bond coupon rate is mainly influenced by the bank interest rate, the issuer's credit status, the repayment period and interest calculation method, and the capital supply and demand in the capital market at that time.

The issuer indicates the debt subject of the bond, which provides the basis for the creditor to recover the principal and interest at maturity.

In addition, there are provisions on early redemption, tax treatment, possibility of default, liquidity and so on.

National debt is a creditor-debtor relationship formed by the state on the basis of its credit and in accordance with the general principles of bonds by raising funds from the society. National debt is a bond issued by the state, a government bond issued by the central government to raise financial funds, and a certificate of creditor's rights and debts issued by the central government to investors, promising to repay the principal and interest within a certain period of time (for example, see table 1). Because the issuer of national debt is the country, the market usually thinks that national debt has the highest market credit, so national debt is recognized as the safest investment tool.

National debt has the highest market credit and liquidity, so it has the following characteristics:

(1) Income from debt interest is tax-free;

(2) National debt is the best asset reserve for commercial banks to maintain liquidity;

(3) The yield curve formed by national debt is the benchmark of bond market pricing;

(4) The difference between other fixed-income products and national debt yields mainly reflects the difference factors such as credit, tax and liquidity.

Table 1 Basic Elements of National Debt

Source: Ministry of Finance.

B

Bonds are not bank deposits —— Risk characteristics of bonds

Although bonds are a kind of fixed-income securities, which can provide relatively stable cash flow, they are not without risks. In fact, bond investment also faces many potential risks, including interest rate risk, reinvestment risk, credit risk, liquidity risk and inflation risk.

Interest rate risk refers to the reverse change of bond price and interest rate level caused by the change of market interest rate after bond issuance. If investors hold bonds to maturity, there is no interest rate risk, but they will still suffer from reinvestment risk.

The risk of reinvestment also comes from the change of market interest rate. Because bonds will continue to generate cash flows before maturity, when reinvesting these cash flows, if the interest rate drops, the reinvestment income will decrease, while if the interest rate rises, the reinvestment income will increase. It can be seen that interest rate risk and reinvestment risk are actually opposite.

Credit risk refers to the risk that the bond issuer fails to fulfill its obligation to repay the principal and interest on time, or the debt price falls due to the decline of the debtor's credit rating. Generally speaking, national debt has no credit risk, so it is usually called "risk-free bond" or "interest rate bond". Bonds issued by the private sector, such as corporate bonds, have different degrees of credit risk, and are usually called "credit bonds". Investors will inevitably ask for additional rate of return to compensate for the credit risk they bear, which is called "credit spread".

Liquidity risk refers to the inconvenience of realizing assets due to insufficient market liquidity. When bond trading is inactive, it is difficult for investors to realize cash, which leads to liquidity risk. Generally speaking, the liquidity of newly issued bonds is better than that of bonds issued in the past.

Inflation risk means that the change of inflation level will directly affect the actual purchasing power of bond investment income.

C

Interest, net price and full price of bonds

After the bond is issued, investors can trade between the agreed interest payment dates. In this case, the buyer needs to pay the accrued interest to the seller as of the delivery date, because the buyer will get the full coupon income on the next interest payment date; When the seller sells bonds, he can't receive any coupon income on the interest payment date; The seller should get coupon income during the bond holding period, so the buyer needs to make some "compensation" to the seller (see Table 2 for example).

The coupon from the last coupon payment date to the delivery date is called accrued interest:

Accrued interest = bond face value × coupon rate × interest-bearing days /365.

Table 2 Accrued interest on national debt 0 19547. hush

Source: wind.

The net bond price is the total bond price minus accrued interest. Usually, the bond prices in the market are net transactions, and the bond prices we see on the Shanghai Stock Exchange are all net prices. Bond transactions are quoted at a net price, that is, the price excluding the accrued interest that naturally increases. The transaction price in the net price trading method does not include accrued interest, and the formation and change of its price can more accurately reflect the intrinsic value of bonds, the relationship between supply and demand and the changing trend of market yield.

The bond transaction settlement adopts the full price delivery method:

Full purchase price = net purchase price+accrued interest

Suppose that on the day of 20 18, 12 and 10, investors buy 0 19547 treasury bonds. Buy SH at the price of 9 1.3 yuan, and then quote 9 1.3 yuan at the net price, and the corresponding holding yield to maturity is 3.778 1%, then:

The full price that investors need to pay for final settlement =9 1.3+0.994438=92.2944 (yuan).

D

Paperless loan method-book-entry national debt

Generally speaking, from the form of bonds, bonds issued in Chinese history can be divided into four types: voucher bonds, bearer bonds, savings bonds bonds and book-entry bonds. At present, only savings bonds and book-entry treasury bonds exist, and the deliverable bonds of treasury bonds futures are book-entry treasury bonds.

Book-entry treasury bonds, also known as "paperless treasury bonds", are accurately defined as bonds issued by the Ministry of Finance in a paperless way, which record creditor's rights in a computer bookkeeping way and can be listed and traded.

Book-entry treasury bonds mainly have the following characteristics:

(1) Capital security: The national debt is guaranteed by the national reputation, and the principal is paid by the Ministry of Finance after the investors purchase the book-entry national debt.

(2) Exemption from interest tax: According to the relevant regulations of the state, the interest on subscribed creditor's rights is exempt from tax. Therefore, investors holding book-entry treasury bonds can enjoy high interest rates and are exempt from interest tax.

(3) High yield: At present, the yield of exchange government bonds is generally higher than the interest rate of savings deposits in the same period, and it is also higher than the certificate-based government bonds issued in the same period.

(4) Convenient purchase: After opening a special account for treasury bonds investment, investors can subscribe for treasury bonds at any time on the trading day.

(5) Good liquidity: book-entry treasury bonds can be bought and sold through the securities market at any time after listing.

By the end of April 2020, the stock of bonds in China's market was about 102.3 trillion yuan, of which national debt accounted for about 16.8 trillion yuan, accounting for 16.42%, and most of them were book-entry national debt. According to China's bond issuance in 20 19, 20 164 1000 billion yuan. Among them, the circulation of book-entry treasury bonds was 3,756.43 billion yuan, accounting for 90.21%; The circulation of savings bonds is 407.67 billion yuan, accounting for 9.79%. It can be seen that book-entry treasury bonds are the main varieties of treasury bonds because they can be listed and traded, with good liquidity and high yield. See figure 11for the proportion of treasury bonds at the end of 20/2009.

Figure12019165438+1Proportion of national debt at the end of October

Source: wind.