Financial Investment

Author: Jin Daozheng Compiler/Nationality:
Publisher:
Publishing Time: 2004-08-01
Features: (4) Liquidity. Refers to the ability of bond holders to flexibly transfer bonds in exchange for cash according to their own needs and actual market conditions.
2. Face Value Elements of Bonds (1) Face Value of Bonds. Refers to the currency and face amount of the bond. (2) Repayment Period of Bonds. Refers to the time from the issuance of the bond to the repayment of principal and interest. (3) Interest Rate of Bonds. Refers to the ratio of bond interest to the face value of the bond, usually expressed as an annual percentage rate. (4) Issuer of Bonds. Refers to the debt of the bond.
3. Classification of Bonds The classification of bonds is a very complex task, and different bond categories can be established based on different criteria. (1) Based on the issuer, bonds can be classified as government bonds, financial bonds, and corporate bonds. ① The issuer of government bonds is the government. ② The issuer of financial bonds is banks or non-bank financial institutions. ③ The issuer of corporate bonds is joint-stock companies, but some countries also allow non-joint-stock enterprises to issue bonds. (2) Based on the interest calculation method, bonds can be divided into simple interest bonds, compound interest bonds, discount bonds, and progressive interest bonds, etc. ① Simple interest bonds refer to bonds where interest is calculated only on the principal, regardless of the term, and the interest earned is not added to the principal for the next period's interest calculation. ② Compound interest bonds are the opposite of simple interest bonds. They refer to bonds where interest is calculated by adding the interest earned to the principal at certain intervals and then calculating interest on the new principal. ③ Discount bonds are bonds that do not specify an interest rate on the face value. They are issued at a discount rate below the face value and are repaid at face value upon maturity. ④ Progressive interest bonds refer to bonds where interest is calculated using a progressive interest rate method. (3) Based on the risk level, bonds can be divided into fixed-rate bonds and floating-rate bonds. ① Fixed-rate bonds. Fixed-rate bonds are bonds where the interest rate is specified at issuance. ② Floating-rate bonds. Floating-rate bonds are bonds where the actual interest rate can fluctuate. The actual interest rate is usually determined by adding a certain spread to a benchmark interest rate. (4) Based on the form of the bond, bonds can be divided into physical bonds, certificate bonds, and book-entry bonds. ① Physical bonds are bonds with a standard physical coupon. ② Certificate bonds are a form of receipt for bondholders to collect interest, rather than a standardized bond format issued by the bond issuer. ③ Book-entry bonds are bonds without a physical coupon and are recorded in a computer account. (5) Other classifications, such as convertible bonds and non-convertible bonds, transferable bonds and non-transferable bonds, etc.
4. Repayment Methods of Bonds (1) Maturity Repayment. Also known as full-term repayment, refers to the repayment of the principal in full at the time specified when the bond was issued upon maturity. (2) Mid-term Repayment. Also known as intermediate repayment, refers to the repayment of part or all of the principal before the final maturity date. (3) Extension Repayment. Refers to the extension of the original repayment and interest payment date after the bond's maturity. (4) Partial Repayment. Refers to the repayment of a certain proportion of the issuance amount after a grace period from the issuance date, gradually paying off the bond until the full repayment is completed upon maturity. (5) Full Repayment. Refers to the repayment of the entire principal before the bond's maturity. (6) Scheduled Repayment. Also known as periodic repayment, refers to the issuer's ability to freely decide the repayment time after a grace period, and to repay part or all of the bond. (7) Lottery Repayment. Refers to the determination of which bonds should be repaid by drawing lots before the maturity date. (8) Buyback and Cancellation. Refers to the bond issuer buying back its own bonds from the secondary market before maturity at market prices and canceling the debt.
(II) Government Bonds 1. Definition and Nature of Government Bonds Government bonds are debts incurred by the state, which are debt certificates issued to investors, promising to pay interest and repay principal within a certain period. In our daily lives, the government bonds people usually refer to are the narrow sense, i.e., government debt. Generally, bonds issued by the central government are called central government bonds or national bonds, abbreviated as government bonds. While bonds issued by local governments are called local government bonds, abbreviated as local bonds. Nature of government bonds: ① Government bonds are securities. ② Government bonds are tools for the state to implement macroeconomic policies and conduct macroeconomic regulation. As a type of bond in the bond system, compared with other bonds, government bonds show four characteristics: ① High security. Among all types of bonds, the credit rating of government bonds is usually considered the highest. ② Strong liquidity. The secondary market for government bonds is highly developed, and transfers are very convenient. ③ Stable income. The payment of interest on government bonds is guaranteed by the government. For investors, the income from investing in government bonds is relatively stable. ④ Tax-exempt treatment. Most countries stipulate that the income from purchasing government bonds can enjoy tax-exempt treatment.
2. National Bonds National bonds are debt certificates issued by the central government based on the principle of credit, with the premise of assuming the responsibility of repaying principal and interest. National bonds are usually abbreviated as government bonds. National bonds can be divided into different categories based on different criteria. ① Based on repayment period, national bonds can be divided into short-term national bonds, medium-term national bonds, and long-term national bonds. Short-term national bonds generally refer to national bonds with a repayment period of one year or less. Medium-term national bonds refer to national bonds with a repayment period of more than one year but less than 10 years. Long-term national bonds refer to national bonds with a repayment period of 10 years or more. ② Based on the purpose of funds, national bonds can be divided into deficit bonds, construction bonds, war bonds, and special bonds. ③ Based on whether they are tradable, national bonds can be divided into tradable national bonds and non-tradable national bonds. ④ Based on the issuance base, national bonds can be divided into physical national bonds and monetary national bonds.
3. National Bonds in China (1) Treasury Bonds. Treasury bonds originated in the UK and are government bonds used to make up for the difference between the treasury's income and expenditure. China began issuing treasury bonds in 1981. In 1988, pilot programs for the transfer of treasury bonds were launched in batches in 60 cities across the country, and the transfer market was fully opened in 1990. (2) National Bonds. Since 1981, the types of national bonds issued in China have included National Key Construction Bonds, National Construction Bonds, Fiscal Bonds, Special Bonds, Inflation-Protected Bonds, and Basic Construction Bonds, etc.
(III) Financial Bonds Financial bonds refer to tradable securities issued by banks and non-bank financial institutions in accordance with legal procedures and promising to repay principal and interest within a specified period. Issuing financial bonds and absorbing deposits are means for banks and other financial institutions to expand the sources of credit funds. The main characteristics of financial bonds are: (1) Specialized Use. Funds raised by issuing financial bonds are generally used for targeted special loans, while funds obtained by absorbing deposits are usually used for general loans. (2) Concentrated Funding. In terms of funding rights, issuing financial bonds is concentrated. It has intermittent characteristics and certain scale limits. While absorbing deposits for financial institutions is a regular and continuous business with no limit. (3) High Interest Rate. In terms of funding costs, financial bonds generally have higher interest rates, relatively higher costs. The interest rates of deposits with the same term are often lower, with lower costs. (4) Liquidity. In terms of circulation and transfer, financial bonds cannot be redeemed in advance. As a bond, they are generally not registered and non-redeemable, can be pledged, and can be traded in the securities market. Deposits can be redeemed at any time (especially for current deposits), but they are generally registered and cannot be traded in the securities market.
(IV) Corporate Bonds Corporate bonds refer to tradable securities issued by companies in accordance with legal procedures and promising to repay principal and interest within a specified period. Characteristics of corporate bonds: (1) Contractual Nature. Corporate bonds represent a contractual relationship between creditors and debtors. They stipulate that the bond issuer must pay interest within a specified time and repay the principal within the agreed date, thereby clarifying the rights, obligations, and responsibilities of both parties. (2) Priority. Bond holders are creditors of the company and have the right to receive interest on time, with interest distribution priority over shareholders. When a company is liquidated, bond holders also have priority in recovering the principal over shareholders. (3) Risk. Compared with government bonds or financial bonds, corporate bonds are riskier. (4) Notice Repayment. Some corporate bonds have a notice repayment clause, meaning the bond issuer has the right to repay the principal before the bond's maturity. (5) Convertibility. Some corporate bonds allow holders to convert them into other financial instruments under certain conditions, such as company stocks. The terms of conversion for convertible corporate bonds must be clearly stipulated in the contract. Categories of corporate bonds: (1) Credit Corporate Bonds. These are bonds issued without any collateral from the company and fall under the category of unsecured bonds.