What is a bond?

1. Definition of bonds

Bonds are creditor's rights and debt certificates issued to investors by national or regional governments, financial institutions, enterprises and other institutions when they directly raise funds from the society, and promise to pay interest at a specific interest rate and repay the principal according to the agreed conditions. Bonds have the following four meanings: first, the issuer of bonds is the borrower of funds; Second, investors who buy bonds are lenders of funds; Third, the issuer (borrower) needs to repay the principal and interest according to the agreed conditions of the bond; Fourth, bonds are proof of debts and have legal effect. There is a creditor-debtor relationship between the bond purchaser and the issuer. The issuer is the debtor and the bondholder is the creditor.

2. The basic elements of bonds

Although there are various types of bonds, they all contain some basic elements in content. These elements refer to the basic contents that must be stated on the issued bonds, including: face value, maturity date, interest payment period, coupon rate, issuer name, etc.

3. Bond classification

(1) can be divided into government bonds, financial bonds and corporate bonds according to the issuer.

(2) According to the property guarantee, it can be divided into mortgage bonds and credit bonds.

(3) According to the bond form, it can be divided into physical bonds, voucher bonds and book-entry bonds.

(4) According to whether it can be converted into stocks, it can be divided into convertible bonds and non-convertible bonds.

(5) According to the interest payment method, it can be divided into zero coupon bond, fixed interest rate bonds and floating rate notes.

(6) According to whether it can be repaid in advance, it can be divided into redeemable bonds and irrevocable bonds.

(7) According to different repayment methods, it can be divided into: one-time maturity bonds and installment maturity bonds.

(8) According to the interest-bearing method, it can be divided into simple interest bonds, compound interest bonds and progressive interest rate bonds.

Generally speaking, bonds with a maturity of 1 ~ 5 years are called short-term bonds, bonds with a maturity of 5 ~ 12 years are called medium-term bonds, and bonds with a maturity longer than 12 years are called long-term bonds.

For example, China Development Bank issued a book-entry bond in 20 17, which will expire in 2037. Before 10, coupon rate accounted for 4%, and after1/kloc-0, coupon rate accounted for 4.5%. 1 1 year, and the issuer can redeem the face value of each hundred yuan on 102. According to the issuer, the bond is a financial bond; Guaranteed by property, belonging to credit debt; Formally, it belongs to book-entry bonds; According to whether it is convertible, it belongs to non-convertible bonds; Divided by the interest amount, it belongs to a fixed interest rate bond; According to whether it can be repaid in advance, it belongs to redeemable bonds; According to the repayment method, it is a one-time maturity bond; According to the interest-bearing method, it is a progressive interest rate bond.

4. Validity period and remaining validity period

The validity period refers to the period from the issue date to the face value settlement date, and the remaining validity period refers to the date from the price evaluation date of the issued bonds to the face value settlement date. For example, today is March 5, 2020, and on March 5, 20 19, a 10-year bond is issued, so the validity period of the bond is 10, and the remaining validity period is 9 years.

5. Definition and characteristics of national debt

National debt, also known as 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 debt. National debt is a bond issued by the state, a government bond issued by the central government to raise financial funds, and a debt certificate issued by the central government to investors, promising to pay interest and repay the principal within a certain period of time. As the issuer of national debt is a country, it is generally considered to have the highest credit. National debt is recognized as the safest investment tool. National debt has the following characteristics:

(1) Debt interest income is tax-free.

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

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

(4) The difference between other interest rate products and national debt yields mainly reflects credit, tax and liquidity factors.

02

What is interest rate?

Interest rate is the abbreviation of interest rate, which refers to the ratio of interest to principal in a certain period of time. Expressed by the formula: interest rate = interest ÷ principal × 100%. Interest rate reflects the cost or value-added ability of funds, so interest rate is the price of funds.

Interest rate is an important indicator reflecting the national economy and a "barometer" of economic operation. Other things being equal, interest rates will rise, capital costs will increase, borrowing funds will decrease, social investment will decrease, and economic growth will slow down; On the contrary, lowering interest rates can stimulate economic growth, and central banks all over the world will raise or lower interest rates to curb economic overheating or stimulate economic development.

The main factors that affect the interest rate are: inflation rate, money supply, national asset investment scale, gross national product, national fiscal policy, international interest rate and exchange rate level.

It can be seen that interest rates are influenced by many economic factors, and the changes of these factors may lead to fluctuations in interest rates, resulting in interest rate risks, which are mainly manifested in the following aspects:

(1) For the national macro-economy, the frequent fluctuation of interest rate will adversely affect the national asset investment and the whole economic operation.

(2) For commercial banks, interest rate changes will affect the profit level and operating conditions.

(3) For financial institutions that hold a large number of bonds, interest rate changes will affect the income from holding bonds.

(4) Frequent or large fluctuations in interest rates will have a serious negative impact on enterprises and the public.

In order to effectively manage interest rate risk, interest rate futures came into being. Interest rate futures are futures with specific creditor's rights and debt instruments closely related to interest rate changes as the subject matter, and the subject matter must be financial assets with creditor's rights and debt relations, such as national debt, short-term deposits, government and corporate bonds. Among them, the most common futures are futures with bonds issued by the government as the subject matter. Compared with corporate bonds, government-issued bonds have higher credibility, larger market scale, stronger liquidity and more participants, especially attracting a large number of institutions to participate, which is an important reason for the rapid development of interest rate futures.