Bond swaps are bought and sold almost at the same time, effectively and quickly replacing old bonds with a new set of bonds. It is also a method adopted by the government to extend the due payment time of national debt to solve the financial crisis. The new bonds have longer maturities and higher yields.
Bond is a kind of financial contract, which is a creditor's right and debt certificate issued to investors when the government, financial institutions and industrial and commercial enterprises directly borrow money from the society and promise to pay interest at a certain interest rate and repay the principal according to the agreed conditions. The essence of a bond is a certificate of debt, which has legal effect. There is a creditor-debtor relationship between bond buyers or investors and issuers. Bond issuers are debtors and investors (bond buyers) are creditors.
Bond is a valuable security. Because the interest of bonds is usually determined in advance, bonds are a kind of fixed-interest securities. In countries and regions with developed financial markets, bonds can be listed and circulated. In China, the typical government bonds are short-term treasury bills.
1. Nominally, the total amount of bonds held remains unchanged. The two sides do not need to actually exchange bonds, and the total amount and types of bonds nominally held will not change. However, the total amount and type of bonds nominally held are the basis of the swap.
2. The essence of different bond swaps is interest exchange (future cash flow). What the two sides exchanged was the right to collect interest during the contract period, not the sum of the principal and interest collected.
3. Fixed interest rate and regular collection of floating rate bills shall not be carried out at the same time.
References:
Baidu encyclopedia-bond swap