0 1
business cycle
American economists W.C.Mitchell and A.F.Bums believe that bond prices show different fluctuation characteristics at different stages of the economic cycle. When the economy is in a prosperous stage, there are frequent economic activities, strong demand, increased employment, expanded output and increased investment. Driven by many factors, the public is optimistic about the future, leading to an upward trend in interest rates and bond prices; During the economic recession, the economic downturn, unemployment increase, income decline, consumption and investment decline, leading to the contraction of bond market trading volume, interest rate rise and bond price decline; When the economy is in the depression stage, the economy is depressed, the unemployment rate reaches the highest and the income is the lowest, the public is pessimistic about the future, the level of consumption and investment remains at a low level, the bond market is depressed, and the bond price remains at a low level; When the economy is in the recovery stage, investment increases, production picks up, employment increases and prices rise. The whole economy is on the rise, and the bond market is active. When interest rates remained low, bond prices began to rise. It can be seen that bond prices generally fluctuate in the same direction as the economic cycle.
02
market rate
Most countries usually adjust their policies to prevent economic ups and downs and maintain sustained and healthy economic operation. In the regulation of economic policy, monetary policy has a great influence on the operation of bond market. No matter in countries with market-oriented interest rates or countries with regulated interest rates, the central bank has great power to intervene in interest rates, which can affect the money supply in the market by changing the statutory reserve ratio, rediscounting interest rates or conducting open market operations, thus causing changes in market interest rates. As the direct market of monetary policy, the bond market is greatly influenced by the adjustment of monetary policy. The increase or decrease of money supply, the increase or decrease of deposit and loan interest rates, the open market operation and the adjustment of deposit reserve ratio will all affect the operation direction of the bond market. In addition, the coupon rate of bonds may have an impact on bond prices. Coupon rate is also the nominal interest rate of bonds. The higher the nominal interest rate of bonds, the greater the maturity income and the higher the price of bonds.
03
Inflation rate
Theoretically speaking, the inflation level exceeding the average social profit rate will damage the normal credit relationship. Interest paid at the nominal interest rate may be swallowed up by rising prices after entering the circulation of commodities, and even it is not enough to make up for the opportunity cost, so that inflation is beneficial to borrowers and unfavorable to borrowers. According to Fisher effect, the real interest rate is equal to the nominal interest rate minus the inflation rate. Therefore, for bond investors, the higher the inflation level of economic operation, the higher the required rate of return on bond investment, so as to make up for the possible risk of declining purchasing power of funds in the future. On the other hand, if the general rise in prices is inflation, the central bank tightens monetary policy and raises interest rates, and social funds are generally in short supply, and the expected rate of return in the market rises, thus forcing bond prices to fall; On the other hand, if the price level is stable or even falls steadily, monetary policy will be relaxed, social funds will be abundant, interest rates will fall, the expected rate of return in the market will also fall, and bond prices will rise accordingly.
In addition to the above factors, investors' profit expectations, the relationship between supply and demand of bonds, the issuer's credit status, and the repayment period of bonds will also have an impact on bond price fluctuations.
1. Investor's profit expectation
The profit expectation (return on investment R) of bond investors changes with the change of market interest rate. If the market interest rate is high, the investor's profit expectation R will also rise and the bond price will fall. If the market interest rate falls, the bond price will rise. This is most obvious when bonds are issued.
2. Bond supply and demand relationship
The market price of bonds also depends on the relationship between capital and bond supply. When the economic development is on the rise, enterprises generally need to increase investment in equipment, so on the one hand, they will throw out bonds because they are in urgent need of funds, on the other hand, they will borrow money from financial institutions or issue corporate bonds, which will tighten the market funds and increase the supply of bonds, thus leading to a decline in bond prices. However, when the economy is depressed, the demand for capital of production enterprises will decline, and financial institutions will have excess funds due to the reduction of loans, thus increasing investment in bonds and leading to an increase in bond prices. When the central bank, the financial department and the foreign exchange management department carry out macro-control on the economy, it will often cause changes in the supply of market funds, which are generally reflected in the changes in interest rates and exchange rates, thus causing the rise and fall of bond prices.
3. Credit status of the issuer
If the issuer's credit degree is high, the risk of its bonds is small, so its price is high; If the credit rating is low, the bond price is low. Therefore, in the bond market, for other bonds with the same conditions, the price of government bonds is generally higher than that of financial bonds, and the price of financial bonds is generally higher than that of corporate bonds.
4. Waiting period
The shorter the waiting period, the closer the bond price is to its final value (exchange price) M( 1+rN), so the longer the waiting period, the lower the bond price. In addition, the longer the repayment period, the greater the risk that the bond issuing enterprise bears, so the lower the bond price.