The main trading place of bonds

China's bond trading places are mainly inter-bank bond market and exchange market (Shanghai Stock Exchange and Shenzhen Stock Exchange).

1. Interbank bond market

The inter-bank bond market relies on China Foreign Exchange Trading Center, National Inter-bank Funding Center (hereinafter referred to as the Inter-bank Funding Center) and China Securities Depository and Clearing Corporation (hereinafter referred to as the Central Registration Corporation), including the market where commercial banks, rural credit cooperatives, insurance companies, securities companies and other financial institutions buy and sell bonds. After rapid development in recent years, the inter-bank bond market has become the main body of China bond market. Most book-entry treasury bonds and policy financial bonds are issued and traded in this market.

China Government Securities Depository and Clearing Co., Ltd. provides bond custody, settlement and information services for market participants; The National Interbank Funding Center provides intermediary and information services for market participants' quotations and transactions. Authorized by the People's Bank of China, the Interbank Funding Center and the China Government Securities Depository and Clearing Corporation can disclose relevant market information. At present, China's inter-bank bond market has the following characteristics:

(1) The main board position of the bond market has been basically established. China bond market is divided into inter-bank bond market and exchange bond market. With the rapid expansion of the inter-bank bond market, its share and influence in the China bond market are also expanding. From 2065438 to 2008, the bond market issued 43.6 trillion yuan of various bonds, an increase of 6.8% over the previous year. Among them, the inter-bank bond market issued bonds of 37.8 trillion yuan, a year-on-year increase of 2.9%. By the end of 20 18 and 12, the balance of bond market custody was 86.4 trillion yuan, of which the balance of inter-bank bond market custody was 75.7 trillion yuan. In 20 18, the trading volume of spot bonds in the bond market was 156.7 trillion yuan, up 44.6% year-on-year. Among them, the trading volume of spot bonds in the inter-bank bond market 150.7 trillion yuan, with an average daily turnover of 602.9 billion yuan, up 47.2% year-on-year; The trading volume of spot bonds in the bond market of the Exchange was 5.9 trillion yuan, with an average daily turnover of 24.4 billion yuan, up 7. 1% year-on-year. In 20 18, the total amount of credit lending and repurchase transactions in the inter-bank market was 862 trillion yuan, up 24% year-on-year. Among them, the cumulative transaction of interbank lending was 139.3 trillion yuan, a year-on-year increase of 76%; The cumulative turnover of pledged repo was 708.7 trillion yuan, a year-on-year increase of 20.5%; The cumulative turnover of buyout repurchase was 14 trillion yuan, down 50.2% year-on-year.

(2) Market functions are gradually emerging, with both investment and liquidity management functions. The rapid expansion of the inter-bank bond market provides a platform for commercial banks to operate funds, improves the efficiency of capital operation of commercial banks, and forms a huge secondary reserve of commercial banks. Accordingly, commercial banks gradually reduce the level of excess reserves, which significantly enhances the liquidity of commercial banks' assets while improving the income from capital operation. In addition, the inter-bank bond market has also become the open market operation platform of the central bank. From 65438 to 0998, the People's Bank of China began to adjust the base currency by buying, selling and repurchasing cash bonds in the interbank market.

(3) Compared with the international market, the market liquidity is still low.

Although the transaction volume of China inter-bank bond market has increased substantially, it is largely due to the growth of bond stock, so overall, the liquidity is still poor. This reflects that although the total amount of China's bond market has expanded rapidly, the market microstructure and operational efficiency still need to be improved. The lack of liquidity in the cash market greatly reduces the effectiveness of the bond market as liquidity management, and also affects the price discovery function of the bond market, further reducing the operating efficiency of the market.

Participants in the inter-bank bond market reach deals with their selected counterparties one by one through inquiry, which is different from the trading mode of China Shanghai and Shenzhen Stock Exchanges. Like stock trading, the bond trading conducted by the exchange is made by many investors at the same bidding price through computers.

Participants in the interbank market are legal entities, mainly including commercial banks, securities companies, funds, insurance, trusts and other financial institutions, as well as some non-financial institutional investors. For individual investors, the interbank market is not yet open.

2. Foreign exchange market

The exchange national debt market is an on-site market dominated by non-bank financial institutions and individuals. The market trades by means of continuous bidding, and the custody and settlement of bonds are conducted by China Securities Depository and Clearing Corporation.

According to the Detailed Rules for the Implementation of Bond Trading in Shanghai Stock Exchange revised by 20 19, bonds traded in the bond market of the exchange can include: national debt, corporate bonds, corporate bonds and corporate bonds among convertible corporate bonds traded separately. Trading methods include both spot trading and pledged repo trading.

The traditional exchange bond market usually only adopts the way of bidding, that is, according to the principle of price priority and time priority, the trading system matches the investors' buying and selling instructions and finally reaches a transaction. Shanghai Stock Exchange and Shenzhen Stock Exchange (Shenzhen Stock Exchange) not only follow the traditional auction-matching trading method, but also launch the OTC trading method on the corresponding platforms in recent years.

The fixed-income electronic platform of the exchange faces institutional investors and provides services for large cash transactions. The platform includes two markets: one is the market between traders, which adopts quotation system and inquiry system; The other is the market between traders and ordinary investors, which adopts the mode of agreement trading and trades through transaction declaration. The platform can be used for cash transactions, buyout repurchase operations, and declaration and return of pledged bonds, but it cannot be used for pledged repurchase operations.

Trading can also be conducted between the bidding and inquiry systems in the exchange market, but the bonds in this system are traded in T+0 mode, and the cross-system trading mode is T+ 1 mode, that is, bonds bought through the bidding system on the same day can be sold through this system, but only through the fixed-income integrated electronic platform on the next trading day.

The difference between the inter-bank bond market and the exchange bond market is shown in the following table.

Explain the difference between the inter-bank bond market and the exchange bond market.

02

What are the risks of bond trading?

1. Credit risk

Credit risk refers to the risk that the borrower who issues bonds cannot pay interest or repay the principal on time, which will bring losses to bond investors. Among all bonds, the national debt has almost no default risk because of the government credit guarantee. However, bonds issued by companies other than local governments and central governments are more or less at risk of default. Therefore, credit rating agencies should evaluate bonds to reflect their default risk. Generally speaking, if the market thinks that the default risk of a bond is relatively high, then the market will require the bond to have a higher yield, thus making up for the possible credit risk.

The causes of credit risk include: failure to pay interest on time and failure to repay the principal and interest. Even treasury bonds may have greater credit risks, such as the European debt crisis.

2. Interest rate risk

The interest rate risk of bonds refers to the risk of losses caused by changes in the value of bonds due to changes in interest rates. For national debt, interest rate risk is the main risk. When interest rates fall, bond prices rise, but when interest rates rise, bond prices fall. If the duration of the bond is 4, when the yield increases by 0.2%, the value of the bond decreases by about 0.8%. This kind of risk is interest rate risk.

3. Purchasing power risk

Purchasing power risk refers to the risk that the purchasing power of assets decreases due to inflation. During the period of inflation, real interest rate = nominal interest rate-inflation rate. For example, in the inflation cycle of the 1990s, the real interest rate was negative. In this case, buying bonds, even if they receive coupons, still reduces the purchasing power of assets. For example, the face value of bonds is 100 yuan, coupon rate is 4%, the yield is 4%, the inflation rate in that year is 6%, and the interest is paid once a year when it matures one year later. We found that if we spend 65,438+004 yuan to buy the bond, the income by the end of the year will be 65,438+004 yuan. If you need to maintain the same purchasing power, you need to get 106 yuan, so purchasing power appears.

4. Liquidity risk

Liquidity risk refers to the inability to sell bonds at a fair or near fair price in a relatively short period of time. In a market with poor liquidity, if an investor wants to realize bonds, it will take him a long time or suffer certain losses. For example, if an investor holds an illiquid bond with a fair value of 99.80 yuan, there is usually almost no market trading volume. If the yield of the day remains unchanged, investors want to sell bonds with a face value of 200 million yuan, and the final average transaction price is only 97. 10 yuan. At this time, 2.7054% of the market value loss is caused by insufficient liquidity.

5. Reinvestment risk

Bond investment can earn bond interest and partial principal reinvestment interest (such as partial asset-backed securities). If you can get a yield of 5% by investing in bonds, but you can only invest at a yield below 5% every time you receive interest, then yield to maturity will decline.

situation

Suppose we hold a bond with a maturity of two years, and coupon rate pays 5%, with interest paid once a year. If the reinvestment yield is 5%, what is the yield of this bond?

We can look at the cash flow first (as shown in the table below).

Bond cash flow statement

With the coupon of T= 1, we will invest another 5%, 1 year. When T=2, the cash flow is 5×( 1+5%)=5.25 yuan.

The total cash flow with T=2 is105+5.25 =110.25 yuan.

The annualized rate of return we have achieved is:

If the reinvestment yield is 0%, what is the yield of this bond?

With the coupon of T= 1, reinvest at 0% 1 year, when T=2, the cash flow is 5×( 1+0%)=5 yuan.

The total cash flow with T=2 is 105+5= 1 10 yuan.

The annualized rate of return we have achieved is:

This rate of return is lower than the previous question, mainly because the rate of return on reinvestment is low.