Read the first book to understand investment and financial management

Chapter 17 Buying bonds, the ideal choice for the public's sound investment (2)
Convertible corporate bonds are a special type of corporate bonds. The reason why they are special is that the issuing company stipulates in advance that the creditor can choose a favorable opportunity to pay at a specific price (the current conversion price) within a specific period (the conversion period). ) into the equivalent stock (ordinary stock) of the bond-issuing company. It is a corporate bond that has been given the right to convert stocks. Therefore, convertible bonds have some basic characteristics of ordinary bonds (such as coupon rate, principal repayment at maturity interest, etc.), and has certain characteristics of stocks, which is a hybrid form of bonds.The issuance of convertible bonds by my country's listed companies is strictly approved, and the bond credit ratings are all above AA, which is not inferior to listed corporate bonds. In addition, convertible bonds have the characteristics of "bounded downside risk and unbounded upside", so they are more popular with institutions. Favored by investors and professional investors.

When investing in bonds, some investment strategies can allow investors to obtain good returns.

(1) The time difference can be used to improve the utilization rate of funds.Generally, bond issuance has an issuance period, such as half a month.If it is possible to buy within this period, it is best to buy on the last day; similarly, there is also a redemption period when it is due for redemption, so it is best to cash it on the first day of redemption. The time taken up relatively increases the rate of return on bond investment.

(2) You can choose high-yield bonds.The income of bonds is an investment tool between savings, stocks and funds, and it is relatively safe.Therefore, in the choice of bond investment, you might as well boldly buy some bonds with higher yields, such as corporate bonds and transferable bonds.Especially families with relatively high risk tolerance, don't just focus on national debt.

(3) Earn price difference by using market difference and regional difference.There is a price difference between the same type of treasury bonds traded through the Shanghai Stock Exchange and the Shenzhen Stock Exchange.Taking advantage of the market difference between the two markets, it is possible to earn the difference.At the same time, you can take advantage of the regional differences between regions to carry out buying and selling, and you may also earn the price difference.

(4) The technique of selling old for new can be adopted.When the new government bonds are issued, sell the old government bonds in advance, and then buy the new government bonds with the principal and interest, and the income may be higher than the income of the old government bonds when they mature.This method has a condition: it is necessary to compare the interest rate before and after the sale to estimate whether it is cost-effective.

(5) Pay attention to the combination of treasury bond investment.Personal investment in government bonds should be planned and arranged according to the specific circumstances of each family and each individual, as well as the long and short term of funds.

If you have short-term idle funds, you can buy book-entry treasury bonds or bearer treasury bonds.Because book-entry treasury bonds and bearer treasury bonds are both types of securities that can be listed and circulated, their trading prices follow the market, and they can be realized at any time during the holding period through trading venues.

If you have idle funds for more than 3 years or longer, you can buy medium and long-term treasury bonds.Generally speaking, the longer the maturity of the treasury bond, the higher the interest rate.

Investors who have high requirements on the stability of income can ensure the stability of income by conducting portfolio investment under the condition of funds.For example, divide the funds into three equal parts and invest in three different types of bonds with a term of 1 year, 2 years and 3 years respectively, so that 1/3 of them will mature every year, and the income is quite stable.Or invest in short-term treasury bonds in order to ensure liquidity, or hold long-term bonds in order to ensure bond income instead of buying medium-term bonds.

Bond investment is not a simple purchase activity, but also pay attention to strategies and skills, such as using the changes in bond prices to buy and sell bonds to earn the difference.Skillful bond investment can reduce the time of capital occupation and increase the yield of bond investment.

Three key words to help you choose a good bond
When investors look at bond analysis articles or bond yield indicators provided by the media, they often find several proper nouns: duration, yield to maturity, and yield curve.What do these terms mean for investors choosing bonds?

[-]. Duration

The duration is numerically similar to the remaining maturity of the bond, but it is different from the remaining maturity of the bond.In bond investment, duration is used to measure the interest rate risk of bonds or bond portfolios, which is of great help to investors in effectively grasping the investment rhythm.

Generally speaking, the duration is inversely proportional to the yield to maturity of the bond, and directly proportional to the remaining life of the bond and the coupon rate.But for an ordinary interest-bearing bond, if the bond's coupon rate is equal to its current yield, the bond's duration is equal to its remaining life.As a special case, when a bond is a discounted bond with no coupon rate, the remaining life of the bond is its duration.In addition, the longer the bond's duration, the greater the impact of changes in interest rates on the bond's price, and therefore the greater the risk.When interest rates are lowered, bonds with longer durations rise more; when interest rates are raised, bonds with longer durations also fall more.Therefore, when investors expect future interest rate hikes, they can choose bonds with shorter durations.

At present, in bond analysis, duration has surpassed the concept of time. Investors use it more to measure the sensitivity of bond price changes to interest rate changes, and after certain corrections, it can be accurately quantified. The effect of changes in interest rates on bond prices.The greater the modified duration, the more sensitive bond prices are to changes in yields, the greater the decline in bond prices caused by rising yields, and the greater the increase in bond prices caused by falling yields.It can be seen that under the same factor conditions, bonds with a small modified duration are more resistant to the risk of rising interest rates than bonds with a large modified duration, but weaker in resisting the risk of falling interest rates.

[-]. Yield to maturity
Although the price of treasury bonds is not as volatile as that of stocks, there are many varieties and different term interest rates, which often make investors dazzled and unable to start.In fact, novices investing in treasury bonds can make a basic judgment based on only one yield to maturity.Its formula is:
Yield to maturity = [fixed interest rate + (expiration price - purchase price) ÷ holding time] ÷ purchase price
Once you have mastered the method of calculating the yield of government bonds, you can calculate the yields of different government bonds at maturity or during the holding period at any time.Accurately calculate the rate of return of the government bonds you are concerned about, so that you can compare it with the current bank interest rate and make an investment decision.

[-]. Yield curve
The bond yield curve reflects the yield-to-maturity level of bonds with different maturities at a certain point in time.Using the yield curve can be of great help to investors in their bond investments.

Bond yield curves typically manifest themselves in four situations:
(1) Positive yield curve, which means that at a certain point in time, the longer the investment period of the bond, the higher the yield, which means that the social economy is in the growth stage (this is the most common form of the yield curve ).

(2) An inverted yield curve, which shows that at a certain point in time, the longer the investment period of bonds, the lower the yield, which means that the social economy has entered a recession.

(3) A horizontal yield curve, indicating that the level of yield has nothing to do with the length of the investment period, which means that the social economy is extremely abnormal.

(4) Volatility yield curve, which shows that bond yields fluctuate with different investment periods, which means that the social economy may fluctuate in the future.

Under normal circumstances, the bond yield curve is usually a positive curve with a certain angle, that is, the position of long-term interest rates is higher than that of short-term interest rates.This is because, since short-dated bonds are more liquid than long-dated bonds, long-dated bonds have higher yields than short-dated bonds as a compensation for less liquidity.Of course, when tight funds lead to an imbalance between supply and demand, an inverted yield curve with short highs and long lows may also appear.

Investors can also adopt corresponding investment strategy management methods according to the expected change trends of different yield curves.If the expected yield curve remains basically unchanged, and the current yield curve is upward sloping, you can buy longer-term bonds; if the expected yield curve steepens, you can buy short-term bonds and sell long-term bonds; If you expect the yield curve to become flatter, you can buy long-term bonds and sell short-term bonds.

Duration, yield to maturity, and yield curve are the three key factors that must be considered when measuring and selecting bonds, which can help bond investors effectively reduce risks and increase returns.

Preventive Measures for Bond Investment Risks

The biggest feature of bond investment is stable income, high safety factor, and strong liquidity.Prudent investors often give up the high returns of stock investment and the low interest rates of bank deposits. This is what the picture shows.Therefore, after yield, security has become the most important issue that bond investors generally pay attention to.

As a certificate of credit-debt relationship, a bond is related to both the creditor and the debtor.In terms of the stability of the relationship between creditor's rights and debts, bonds play the same role between a company or company as a debtor and a bond investor as a creditor, and neither party can independently prevent risks.The measures adopted by enterprises or companies as issuers of bonds to ensure the safety of bonds and maintain the reputation of enterprises or companies are called preventive measures, which are the first line of defense against risks.For investors, choosing bonds correctly and grasping the timing of buying and selling will be the main steps in risk prevention.

[-]. Precautionary measures It is an important step to make various provisions in favor of investors in the issuance of bonds

In developed countries such as Japan, the law stipulates that the issuance of corporate bonds has a certain limit, which cannot exceed the sum of capital and reserves or twice the amount of net assets.

The limit of financial bonds is generally stipulated that the issuance amount cannot exceed 5 times of its capital and reserves.Bond issuance is generally undertaken by the subscribing company. Bonds with a high safety factor are of course easy to be subscribed, which is also a constraint on the enterprise or the company itself.

At the same time, enterprises or companies are obliged to disclose the company's financial, operating, and management status. This system undoubtedly plays a role in supervising and promoting enterprises or companies, and it is a kind of protection for investors.

[-]. Choose multiple varieties of diversified investments

This is the easiest way to reduce the risk of bond investment.Different bonds issued by different companies have different risks and returns. If all funds are invested in a certain type of bond, if there is a problem with the company, the investment will suffer losses.Therefore, selectively or randomly buying bonds with different names of different companies can make the risk and return multiple permutations and combinations, and can minimize or disperse risks.This precautionary measure is particularly important for small and medium-sized investors, especially retail investors.Because such investors have no reliable sources of information, they can't grasp the pulse of the market, and it is difficult to choose the best investment target. At this time, buying a variety of bonds is like spreading a wide net. In this way, the rise and fall of any bond may be rewarded. Unless there is a systemic risk that causes the entire bond market to fall, generally there will be no total loss.

There are some issues that must be paid attention to when adopting this investment strategy:
One is not to buy bonds that are too unpopular, illiquid and difficult to sell, in order to prevent capital lock-up.

The second is not to blindly follow the trend, and to have the confidence that you will not make money or sell it, and you will eventually have good returns.

Third, it is particularly worth noting that we must pay close attention to changes in non-economic special factors, such as the political situation, military dynamics, and people's psychological state, in order to prevent the entire bond market from falling and causing losses across the board.

Also, keep the maturity of the bond diversified.The term of the bond itself has risks. The longer the term, the greater the risk and relatively higher returns; on the contrary, the shorter the term, the lower the risk and the less returns.If all investment is invested in long-term bonds, once a risk occurs, it will be caught off guard, and its loss is inevitable.Therefore, when buying bonds, it is necessary to choose more bonds with different maturities to prevent accidents.

[-]. Pay attention to investing with the trend
For small investors, it is far from manipulating the market. They can only follow the market price trend to do trading transactions, that is, buy when the price rises and people buy one after another; sell when the price falls and people sell one after another. Get the average market returns that most people can get.Although this preventive measure is simple, it can also receive certain benefits.

[-]. Respond to all changes with the same

This is also one of the measures to prevent risks.When the price trend of the bond market is not obvious, one after another, when investors buy and sell chaotically, and the price trend is not obvious, investors cannot make investment choices following the trend. Everything changes.Because it is easy to blindly follow the trend when investing with the trend when you cannot judge.At this time, it is more wise to stop quietly, choose some bonds with small increases and prices that have not been adjusted to buy and hold them patiently, and wait for their prices to rise.Of course, this requires investors to have deep cultivation and good investment knowledge and skills.

Five, we must pay attention to unhealthy investment psychology

To prevent risks, we must also pay attention to some unhealthy investment psychology, such as blindly following the trend, it is easy to be fooled, and it is easy to miss favorable trading opportunities if you are greedy; gambling psychology and desperate results often lead to loss of money; , It is easy to hold a pile of loss-making goods, and finally have to throw them away for nothing.

Investors know that bond investment is a relatively stable and safe investment tool. Bonds can diversify investment risks, so they have become one of the investment choices for prudent investors.But any investment is risky, and bond risks not only exist in price changes, but may also exist in credit.Therefore, correctly assessing the risk of bond investment and clarifying the possible losses in the future is the work that investors must do before making investment decisions.

(End of this chapter)