The picture shows the rapid growth of bond lending since 20 12.
The picture shows that the basis convergence is obvious when the treasury bond futures contract is close to delivery.
The picture shows the profit and loss and basis trend of T 1606 contract active coupon 150023 reverse arbitrage.
The picture shows the spread trend between CDB and national debt.
Commercial development
Bond lending refers to the bond financing behavior that the bond purchaser borrows the underlying bonds from the bond lender with a certain amount of bonds as pledge, and agrees to return the borrowed underlying bonds at a certain date in the future, and the bond lender returns the corresponding pledges. In international bond markets, bond lending is widely used. In June 2006, the People's Bank of China issued AnnouncementNo. 1 2006 (2006) 15, and launched bond lending business in the inter-bank bond market in China. Since then, China Government Securities Depository and Clearing Co., Ltd. (hereinafter referred to as China Bond Bank) has issued the settlement rules for bond lending, which was formally implemented on June 20, 2006, marking that bond lending, as an innovative fund business, has officially moved from theory to reality and from discussion to practice.
At present, the bond lending business is limited to the inter-bank bond market, and the exchange market has not yet been launched. All participants in the interbank market can conduct bond lending and borrowing transactions. Participating institutions mainly include commercial banks, securities companies, credit cooperatives and fund companies, among which commercial banks are the main bond lending institutions. Generally, the term of bond lending is determined by both parties through negotiation, but the longest term shall not exceed 365 days, which is divided into 1 day, 2 days, 3 days, 7 days, 14 days, 2 1 day, 1 month, 2 months, 3 months, 4 months and 6 months.
When conducting bond lending business, the bond purchaser needs to provide the lender with sufficient bonds for pledge, and the pledged bonds are those entrusted by the Central Clearing Company or the Shanghai Stock Exchange. Participants can reach a transaction through the trading system of the National Interbank Funding Center, or by telephone or fax. During the period of bond lending, if the underlying bond pays interest, the bond purchaser shall transfer the accrued interest of the underlying bond to the lender's capital account in full on the interest payment date; At the same time, the pledged bonds can be revalued, and the pledged bonds can be replaced after negotiation by both parties, and a supplementary agreement needs to be signed. When the bond loan expires, it should be delivered in the underlying bond, but it can also be delivered in cash by mutual agreement. It can be seen that the bond lending business is relatively flexible, and the borrowing cost standard, pledge bonds, delivery methods and other issues can be determined by both parties to the transaction through consultation.
In the early days of bond lending business, the market as a whole was very deserted, with only a few transactions a year and basically no institutions involved in lending business. In fact, for banks, bond lending transactions can provide additional bond income, so they are more willing to carry out this business. However, due to the imperfection of accounting and supervision measures in the initial stage, there are some problems in the bond lending business, among which the biggest risk is that the bond purchaser cannot return it when it expires. Although the two parties can make cash delivery after negotiation, the bonds financed by banks are used for long-term holding and maturity, and cash delivery will not be stipulated in the bond lending agreement. Moreover, how to determine the value of the original bond is also a problem under the cash delivery method. In addition, the market needs a long acceptance period for a new product, and it also takes a certain time for institutions to start relevant research, internal norms and risk control.
It was not until 20 12 that ICBC took the lead in the bond lending business and formulated stricter standards, such as the underwriting syndicate of the Ministry of Finance, the primary dealers in the open market of the People's Bank of China, the underwriting syndicate of policy banks and other financial institutions with good cooperative relations with ICBC. With the development of this business of ICBC, many small and medium-sized institutions began to participate in it in the later period, and the number of participating institutions increased from 6 in 20 12 to 68 in 20 14. At the same time, for the integrator, the demand for integrating bonds through borrowing is also increasing. For example, on 20 13, CICC treasury bonds futures were launched, and institutions could borrow cash bonds for short selling and buy treasury bonds futures for arbitrage trading.
After the launch of 20 13 treasury bond futures, the statistics of China Debt Board show that the trading volume of bond lending has obviously improved. In 20 15, the transaction volume of bond lending exceeded 1 trillion yuan, reaching106.5 billion yuan, an increase of 179% compared with 20/4, and the number of bond lending transactions increased to 5009, compared with 20/4.
Since the beginning of 20 16, the bond lending market has developed continuously and rapidly. By the end of April, bond lending had reached 477.8 billion yuan, exceeding the annual turnover of 20 13, an increase of 83% over the previous year. According to the growth rate since 20 16, it is estimated that the annual bond lending volume will reach more than140 billion yuan in 20 16.
major function
Bond lending business can lend bonds that are temporarily not in circulation to investors with bond demand, and increase the number of bonds available for trading and settlement in the market, which not only improves the turnover speed of bonds, but also helps to enhance the liquidity of the market; It can greatly reduce the bond positions held by market makers to ensure bond delivery, thus effectively reducing their inventory risks and improving their market-making ability; In addition, it also provides investors with a new investment profit model and risk avoidance means, and enhances the effectiveness of the market. For bond lenders, the bond lending business can revitalize their existing assets and provide additional income for those investors who want to hold on to maturity without changing the asset allocation. For bond integration institutions, bonds obtained through bond lending can have multiple functions, mainly including the following aspects:
First, improve financing efficiency and reduce financing costs. Generally speaking, bond lending mainly uses credit bonds as pledge bonds in exchange for interest rate bonds. This is because credit bonds are generally used for pledged repo, and some of them can't even be pledged. In this case, credit bonds can be converted into interest rate bonds through bond lending transactions, and interest rate bonds pledged with credit bonds generally have a higher denomination. In the process of bond lending, as long as the bond lending rate is lower than the credit bond pledge repurchase, the financing cost can be effectively reduced through bond lending.
Secondly, through bond lending, you can directly short or cooperate with treasury bonds futures for related arbitrage. Before the central bank allowed the bond lending business in 2006, investors could only short cash bonds through buyout repurchase, but buyout repurchase has many shortcomings compared with bond lending business. One of the main functions of bond lending business is shorting. When investors expect the future rate of return to go up, they can sell the borrowed bonds directly and buy them back at a low price after the rate of return goes up. Of course, this is risky, and we can cooperate with treasury bonds futures to carry out related arbitrage to reduce the risk.
Finally, through the bond lending business, you can borrow bonds for financing and obtain interest spread income. After the borrowed bonds are pledged and repurchased, the borrowed funds can be used as interbank deposit certificates, as well as high-yield bonds, short-term financing, ultra-short financing and so on. Can arbitrage on the basis of basically matching the term.
Specific application
The above-mentioned bonds borrowed through bond lending can not only make profits through direct short selling or term spread trading between stocks, but also carry out related arbitrage through cooperation with treasury bonds futures, mainly including reverse arbitrage and spread trading. In fact, since 20 13, the rapid growth of the bond lending market has a certain relationship with the listing of various treasury bonds futures, the obvious improvement of the activity of treasury bonds futures and the increasing demand brought by the increasing number of participating institutions. Securities companies are the main borrowers of bonds, with 20 15 accounting for 76%. At the same time, in 20 1227, the number of securities companies participating in treasury bond futures trading rose to 54, involving 1227 asset management products, which was nearly three times higher than that in 20 14. There are two main ways for securities companies and other institutions to participate in treasury bond futures trading through bond lending:
1. Selling basis transaction is also called reverse arbitrage, which means that when the basis is large, you can borrow bonds and turn them into corresponding treasury bonds to sell, and at the same time buy a corresponding number of treasury bonds futures, waiting for the basis to narrow and close the position to obtain income.
Under normal circumstances, when the treasury bond futures contract approaches delivery, the basis will obviously converge. Investors can borrow active deliverable bonds through bond lending, sell them before the basis converges, and buy treasury bond futures at the same time to obtain the income from the basis convergence. In particular, it is reminded that there is great uncertainty about the types of bonds obtained by long-term futures due for delivery, because there are many types of bonds that can be delivered, that is, the types of bonds that may be delivered are not sold in the early stage, which is also the risk of bond lending and treasury bond futures arbitrage. Let's give an example to analyze it in detail. Since the second half of 20 15, the basis of treasury bonds futures has changed from the previous negative situation, and the basis has been rising all the way, which has further increased since this year, providing better opportunities for institutional investors to carry out reverse arbitrage. From late April to mid-May, treasury bond futures continued to rise, and the premium of treasury bond futures was repaired, and the basis of deliverable bonds began to narrow. Generally speaking, the profit of doing reverse arbitrage mainly comes from the sum of the profit of shorting cash bonds and the profit of doing long treasury bonds futures, in which the cost is the bond borrowing cost, and the margin of treasury bonds futures can also use the income from selling bonds, so the net income = (the profit of shorting cash bonds+the profit of doing long treasury bonds futures)-the bond borrowing cost. Let's take the active delivery voucher 150023 of T 1606 contract from early May to mid-May as an example to analyze the reverse arbitrage income.
On April 20th, we saw that the basis difference of T 1606 corresponding to 150023 was 1.5 1 yuan. At this time, we carried out reverse arbitrage. By means of bond lending, the cash bonds due at 150023 of 1 100 million yuan are included and sold at the full price of 100.7820 yuan. Since the conversion coefficient of the contract corresponding to T 150023 is 0.9992, T 1606 is also bought. On may 17, the basis narrowed to 0.4 yuan, and the position was closed, that is, T 1606 was sold and 160006 was bought. At this time, the full price of 150023 is 100.7970 yuan, and the price of T 1606 is 100.260 yuan.
Through the results, we can see that the loss of short selling cash bonds is 15000 yuan, while the profit of buying treasury bonds futures is 945000 yuan, and the total income of the two is 930000 yuan. Since the loan interest rate can be determined through negotiation, we assume that when the loan interest rate is 50BP, the corresponding annualized net rate of return after deducting the loan cost is about 9.6% (bond loan cost = total amount of underlying bonds × bond loan interest rate × bond loan period /365).
The second is spread trading, which mainly deals by judging the future trend of the spread between financial bonds and national debt. If the spread is expected to expand, you can borrow financial bonds to sell through bond lending and buy treasury bonds futures at the same time. After the spread is enlarged, you can close your position to get income, and finally use the purchased bonds to return the borrowed bonds. Let's take the spread between financial debt and national debt in April 2065438+2006 as an example to briefly introduce the selling spread transaction combined with national debt futures.
On April 5th, we saw that the spread between CDB and national debt in 10 dropped from 45BP at the end of March to 35BP, and predicted that the spread would widen again in the later period. At this time, we can borrow the corresponding CDB through bond lending. Suppose we borrow 1502 18, suppose the denomination is1000000 yuan, the full price is 105.873 yuan, and its correction duration is 7.7341; T 1606 contract price is 99.66 yuan, the cheapest delivery price is 1500 16, the full price is 105.2066 yuan, the revised duration is 7.8675 yuan, and the conversion coefficient is 1.0403. According to the basis point value method, it is calculated that the futures position required for purchasing government bonds is 103 lots. By April 265,438+0, the spread had expanded to 53BP, and the position was closed at this time. According to the calculation, the profit from selling spot is1786,900 yuan, the loss from buying treasury bonds futures is 4 17 150 yuan, and the comprehensive yield is 1.3%. After deducting the reception fee, the annual yield is about 12%. In the actual operation process, investors can adjust the size of exposure according to their own judgment.
D Advantages compared with buyout repurchase
Buy-out repurchase of bonds refers to the trading behavior that the bondholder (the repurchase party) sells the bonds to the bondbuyer (the reverse repurchase party), and both parties agree that the repurchase party will repurchase the same amount of bonds from the reverse repurchase party at an agreed price at a certain date in the future. The maximum term of buyout repurchase shall not exceed 9 1 day. Unlike pledged repo, reverse repo can sell bonds after obtaining them. Therefore, the main similarity between buyout repurchase and bond lending is that both can achieve the purpose of shorting, but bond lending is relatively more flexible. Although buyout repurchase has both financing and securities lending functions, it is more used for financing. In recent years, the trading volume of bond lending and buyout repurchase has increased to a certain extent, but bond lending has obvious advantages over buyout repurchase.
Restrictive aspect
First, the bond lending business contract is completely determined by both parties to the transaction through consultation. In addition to the limitation of the longest term, the borrowing cost standard, bond pledge and other issues are determined by both parties through consultation, and the buyout repurchase has also made relevant provisions on the transaction price.
Second, the bond lending business is pledged by pledge bonds, which can be different from the underlying bonds and are decided by both parties, with a wide range of choices, while the buyout repurchase must pay the full amount of funds when purchasing bonds, with strict restrictions.
Third, when the bond lending business expires, it can be delivered in cash after negotiation between the borrower and the lender, but the buyout repo cannot be delivered in cash.
Fourth, due to the fact that the integrated balance of bond lending of a single institution exceeds 30% of its total bond free custody, or the integrated balance of a single bond exceeds 65,438+05% of the bond issuance, it is necessary to report to the peer center and China Bond in writing, and explain the reasons for each increase of 5 percentage points; For buyout repurchase, the balance of single bonds to be sold by any market participant should be less than 20% of the bond issuance, and the total balance of bonds to be sold by any market participant should be less than 200% of the total amount of bonds entrusted by China Bond Board.
To sum up, there are fewer restrictions on bond lending than buyout repurchase, so the development space of bond lending is relatively much larger.
Need surface
The first is the urgent need to improve the market-making ability of market makers. For the needs of market making, market makers often need to maintain a large number of bond positions. Since there is no bond lending, once the market price fluctuates, market makers will face great inventory risks, which objectively limits their role.
The second is the need to reduce the settlement risk. With the increase of trading volume and the abundance of trading tools in the inter-bank bond market, the settlement risks faced by market participants also increase. Bond lending enables market participants to integrate into bonds for delivery, thus reducing settlement risk.
Third, the need for diversification of investment strategies. With the maturity and professionalism of market participants, the investment strategies of market participants are increasingly diversified. Bond lending can be used to support more advanced trading strategies, such as short selling, which can better meet the needs of market participants and further enrich their profit models.
The fourth is to increase the profit channels of bond asset holders. From the perspective of market participants, there are not only investors such as securities companies and fund companies who profit from the bid-ask spread for the purpose of trading, but also a large number of investors such as insurance companies and social security funds who aim at holding maturity. Bond lending can increase the income of these investors with the purpose of holding maturity without affecting the asset allocation, thus helping their asset management and increasing profit opportunities.
It is precisely because of the advantages of inter-bank bond lending compared with buyout repurchase in improving market liquidity and preventing settlement risks that more and more governments and market management departments regard promoting bond lending as an important content to promote the development of the bond market in order to activate the inter-bank bond market. However, we should also see the shortcomings of inter-bank bond lending, such as inadequate laws and regulations and inadequate risk prevention measures, which need to be further improved.
At present, bond lending is mainly carried out directly among participants in the national inter-bank bond market, and institutions such as bank insurance, which hold the most national bonds, have not been allowed to participate in the futures trading of national bonds. In the future, with the participation of banks, insurance and other institutions in treasury bond futures trading, treasury bond futures will be more active, and the role of bond lending will be more fully played, and the future development prospects of bond lending will be clearer. In a word, the inter-bank bond lending business has a good development prospect. In the future, we should actively use this active market for financial innovation, form a virtuous circle of the market, and make China's financial industry more developed.