What Happens After a Savings Bond Maturity Date?

Savings bonds (including voucher and electronic) are non-tradable registered treasury bonds issued by the government (Ministry of Finance) for individual investors to meet the needs of long-term savings investment for the purpose of absorbing personal savings funds. Electronic savings treasury bonds are electronic savings treasury bonds that record claims. Compared with the voucher-type savings treasury bonds, electronic savings treasury bonds are richer in variety, more convenient to purchase, and more flexible in interest rates. Because of its non-tradability, it is determined that there will be no capital gain at any time. This is the same as the existing certificated government bonds, mainly to encourage investors to hold maturity.

Savings Treasury Bonds

Savings Bonds (both voucher and electronic) are government-oriented (Ministry of Finance)

According to the 2011 Ministry of Finance and

Saving Treasury bonds refer to non-negotiable RMB bonds issued by the Ministry of Finance in China and sold to individual investors through commercial banks. The bonds are electronically recorded. They are designed to meet the needs of long-term savings investments, and they are more focused on savings functions A variety of debt.

In popular terms, it is equivalent to going to a bank to open a special passbook, except that what is recorded in it is not a deposit, but a record of the purchase and sale of savings bonds and interest income. After a period of operation, it is believed that it will replace the current form of national debt and become the main method of issuing national debt.

Summary of Saving Treasury Bonds

In order to promote the development of the national debt market, prevent the risk of national debt management, and better meet the needs of investors for savings national bonds, the above-mentioned problems existing in savings national bonds must be resolved as soon as possible. To this end, this article proposes the following policy suggestions on how to improve China's savings treasury bonds based on the conclusions of normative theoretical analysis and successful experiences in the issuance and management of savings treasury bonds in developed countries:

Changing Treasury Bonds

The savings treasury bonds were changed from voucher type to bookkeeping type. Book-entry treasury bonds are the product of financial electronicization, with low issuance costs, convenient delivery, and high issuance efficiency, which are in line with the principles of high efficiency and low cost of treasury bond issuance. More importantly, if book-entry treasury bonds are issued, relevant departments such as the Ministry of Finance can accurately and timely grasp the issuance and redemption amount of each underwriting institution, and can uniformly and centrally deposit the savings treasury bonds of all underwriting institutions. The sole function of the savings treasury bond underwriting agency is to sell on behalf of the agency, and it will not become the "quasi-issuer" and "credit custodian" of the savings treasury bonds. This can effectively solve the problem of "excessive risk" in the current voucher savings treasury bonds.

Improvement of Saving Treasury Bonds

Improve the issuance method of savings treasury bonds and the payment method in advance. First of all, the current underwriting agency's nominal consignment and actual reimbursement will be changed to actual consignment, and the problem of underwriting agency's first payment and issuance and underwriting risk will be solved. The income from the underwriting agencies' treasury bond sales is directly transferred by the agencies to the account designated by the Ministry of Finance through the electronic communication system, and the corresponding registration is made in the investor's savings treasury account, and the custodian agency is notified in a timely manner. Second, changing the method of voucher-type government bonds can only be redeemed in advance at the original point of purchase. Investors can go to any agency to handle advance redemption procedures. The redemption payments of the savings treasury bonds are paid step by step, and the final payment is made directly by the Ministry of Finance. Avoid the problem of advance payment for the Ministry of Finance when dealing with the advance redemption business. Of course, the above-mentioned improvement measures are only applicable to book-entry savings treasury bonds, which is another important reason for changing the savings treasury bonds from voucher type to book-entry type.

Designed Treasury Bonds

Reasonably design the varieties of savings national debt. Theoretical analysis shows that the main purpose of the Ministry of Finance to issue savings treasury bonds is to meet the needs of individual investors for long-term savings. At the same time, the savings treasury bonds are also financing instruments that the Ministry of Finance can flexibly design. For this reason, the term, interest rate design, and interest payment methods of China's current voucher savings treasury bonds should be improved.

(1) China should issue more long-term savings national debt in the future. According to the general experience of the past, a considerable part of the maturity of the voucher-type Treasury bonds must be repurchased to new voucher-type Treasury bonds. This shows that investors in China's savings treasury bonds tend to invest in long-term savings treasury bonds. The maturity of Treasury bonds is too short. In the future, China should issue additional 10-30 year long-term savings national debt. Of course, in order to maintain the continuity of the maturity of Treasury bonds, we should also issue some 5-10 years of medium-term Treasury bonds over a considerable period of time. Make savings treasury bonds truly a medium and long-term saving tool for residents and family investors in China.

(2) Savings Treasury bonds use floating interest rates or inflation indexation of interest rates. If long-term savings treasury bonds are issued, the use of floating interest rates or inflation indexing of interest rates is an inevitable choice. Because the longer the bond maturity, the greater the interest rate risk and inflation risk, the more difficult it is to determine a fixed interest rate level that accurately reflects its risk level.

The use of floating interest rates on savings government bonds can effectively solve the above problems. The interest rate of the savings treasury bonds can be adjusted periodically based on a certain market interest rate. For example, the interest rate of US EE savings treasury bonds is adjusted semiannually, that is, new interest rates are announced in May and November each year. The interest rate is equal to 90% of the average yield of the 5-year Treasury bonds in the past six months. China's interest rates have not been fully market-oriented. At the same time, bank deposits are still the main competitors of savings Treasury bonds. Therefore, when determining the interest rate of China's savings treasury bonds, a certain weighted average of the bank deposit interest rate and the yield of tradable government bonds should be used as a benchmark, and a certain degree of adjustment should be made on the basis of the benchmark interest rate.

To protect investors' actual purchasing power from inflation, the Treasury can issue inflation-indexed securities. The interest rate on this bond consists of two parts: a fixed fixed rate and an inflation rate. Among them, the prescribed fixed interest rate is valid for the entire term of the bond, and the indicator of the inflation rate should be the consumer price index (CPI). For example, if the annual fixed interest rate of the inflation-indexed savings treasury bonds is set to 2.3%, then the annual interest rate of the bond = 2.3% + the inflation rate of the current year.

Savings treasury bonds can adopt a variety of interest payment methods, which can repay principal and interest at one time to meet the needs of investors seeking value appreciation, and can also pay interest regularly to meet the needs of investors seeking stable income.

In order to encourage investors to hold savings treasury bonds for a long period of time, and to reduce the pressure of the Ministry of Finance's early redemption, some restrictions should be set on early redemption. For example, it can be stipulated that it must be held for a certain period of time (for example, 1 year) before it can be redeemed in advance. If the holding period is less than a certain period of time (for example, 5 years), early redemption is subject to certain penalties, such as deduction of 3 months of interest income .

Finally, it should be pointed out that no reform can be achieved overnight. It may take some time for investors to accept the new savings bonds. In order to achieve a smooth transition and maintain the stability and continuity of the savings treasury bond market, a certain amount of short-term and medium-term savings treasury bonds can still be issued within a certain period of time.