The income of bonds mainly comes from three aspects: interest income, spread income and leverage income.
1. Interest income: The main source of income from bonds is the interest during the holding period.
The coupon rate and interest payment method will be announced when the bond is issued. After the holder holds the bond until maturity, the issuer will repay the principal and interest.
The interest income from a bond depends on the coupon rate, the method of payment and the holding period of the bond.
The size of bond interest income mainly depends on the following three aspects: ①Coupon interest rate: The higher the coupon rate of the bond, the higher the interest income received by investors; vice versa, the lower it is.
The coupon rate is affected by many factors, including market interest rates, the issuer's credit status, repayment period and interest calculation method, as well as the supply and demand situation in the capital market at that time.
②Interest payment method: Bonds can adopt different interest payment methods, such as one payment at maturity, one payment every year, one payment every six months or one payment every quarter.
A bond that pays interest once upon maturity usually calculates interest on a simple basis, while a bond that pays interest in installments during the year calculates interest on a compound interest basis.
Therefore, during the duration of the bond, the higher the frequency of interest payments, the greater the compound interest income of the bond, and accordingly the interest income will also increase.
③The holding period of the bond: Generally speaking, the longer the holding period of the bond, the higher the interest rate provided, and the greater the income investors will receive after the bond matures; conversely, the smaller the interest rate.
Longer-term bonds typically have higher interest rates because investors are willing to bear the risk and opportunity cost for longer.
2. Spread income: refers to the spread income obtained by bond investors in the market by buying and selling bonds.
This return can be positive or negative, depending on the investor's timing of buying and selling and price fluctuations.
In the secondary market, bond prices will fluctuate due to a variety of factors, including changes in market interest rates, adjustments to macroeconomic policies, market supply and demand, and market news.
Investors can judge the trend of bond prices based on these factors and conduct buying and selling operations at the appropriate time.
If an investor buys a bond when the price is low and sells it when the price is high, he or she can earn a positive spread, or capital gain.
For example, if an investor buys a bond for 98 yuan and then sells it for 102 yuan, he can obtain a price difference income of 4 yuan.
Conversely, if an investor buys a bond when prices are high and sells it when prices are low, a negative spread gain, or capital loss, will be incurred.
It is worth noting that spread income is obtained through the buying and selling of bonds, which is different from the interest income of bonds.
Investors can use flexible trading strategies and market analysis to find price difference opportunities to increase investment returns.
However, there are risks associated with buying and selling bonds, and investors should carefully evaluate market conditions and personal risk tolerance to make informed investment decisions.
3. Leverage income: Leverage income from bonds means that investors use borrowed funds to invest in bonds and obtain additional income through the spread between bond interest and pledge costs.
Specifically, investors can use the bonds they hold as collateral to borrow funds, and then use the funds to reinvest in other bonds, thereby increasing investment returns.
For example, suppose an investor purchases a 1-year bond worth 1,000 yuan with an annual yield of 3%, and will receive an interest of 30 yuan after maturity.
If the investor pledges the 1,000 yuan bond to others in exchange for 500 yuan of funds, he will also pay 2% interest on the loan.
The investor can then use the 500 yuan to buy another bond with an annual yield of 3%, and receive an interest of 15 yuan after maturity.
At the same time, the interest that investors need to pay to creditors is 500 yuan multiplied by 2%, which is equal to 10 yuan.
Then, investors actually obtain an additional income of 15 yuan minus 10 yuan equal to 5 yuan through leverage operation.
Through leverage operations, investors can increase their original profit of 30 yuan to 35 yuan.
It should be noted that leverage operations carry high risks and are not recommended for general investors.
Because leverage operations will increase investment risks, investors may suffer losses once the market fluctuates violently.
Therefore, if investors want to carry out leverage operations, they should pay attention to grasp the leverage multiple and ensure that they have sufficient tolerance.
Leverage operations require careful risk assessment and consideration of one's own financial situation and risk tolerance when investing.
What is the typical yield on bonds?
A bond fund is an investment tool that usually uses bonds as its main investment object.
Bond funds are divided into two types: pure debt funds and partial debt funds.
Pure bond funds mainly invest in various debt instruments, such as treasury bonds, corporate bonds, local government bonds, etc.
Pure bond funds are safer because of their conservative investment scope.
However, the corresponding returns are also relatively stable and generally lower than those of debt-focused funds.
Generally speaking, the average annualized return of pure bond funds is about 5% to 7%.
Partial debt funds allow other investments on the basis of bonds, such as stocks, warrants, etc.
Due to a wider investment scope, the returns of partial debt funds are relatively higher, but they are also accompanied by higher risks.
Investors need to pay more attention to their investment strategies and risk control capabilities when choosing partial debt funds.