What Is a Debenture Investment?

Bond investment refers to an investment method in which bond buyers (investors, creditors) invest capital in the form of bond purchases, receive fixed interest from bond issuers (borrowers, debtors) and recover principal at maturity. The main investors of bonds are insurance companies, commercial banks, investment companies or investment banks, and various fund organizations. In addition, companies, enterprises, and individuals can also put idle funds on bonds, and investors buy bonds in currencies equivalent to the face value of the bonds, receive interest at a certain interest rate, and obtain income. When the prescribed period comes, they will recover the funds. Gold and bonds can be divided into three types: government bonds, corporate bonds and financial bonds. ^[1]

Bond investment

Factors affecting bond investment income:

(1) Bonded

Market supply and demand, monetary policy and fiscal policy

The impact of market supply and demand, monetary and fiscal policies on bond prices directly affects the cost of investors. The higher the cost, the

Key points of bond investment operations

Main issues to consider in bond investment

· Types of bonds

Generally, the risks of government bonds and financial bonds are relatively small. The risks of corporate bonds are greater than the previous two, but the returns also increase in turn.

· Maturity of bonds

Generally, the longer the bond maturity, the higher the interest rate and the higher the risk. The shorter the maturity, the lower the interest rate and the lower the risk.

· Bond income level

Due to inconsistent bond issuance prices, inconsistencies in the time investors hold bonds and the maturity of bonds will affect the level of bond yields.

· Investment structure

A variety of bonds and varieties, the distribution and arrangement of term lengths, and a reasonable investment structure can reduce the risk of bond investment, increase liquidity, and maximize investment income.

Bond Investment Net Trading

The so-called national bond net price transaction is a transaction method that is quoted and traded at a price that does not contain accrued interest that accrues during natural securities purchase and sale. That is, the transaction price of the national debt and the accrued interest of the national debt are decomposed to allow the transaction price to follow the market, and the accrued interest is calculated on a daily basis based on the coupon rate, so that the holders of the national debt enjoy the interest income due during the holding period. Therefore, under the condition of net price trading, because the transaction price of treasury bonds does not contain accrued interest, its price formation and change can more accurately reflect the inherent value of treasury bonds, the relationship between supply and demand and the trend of market interest rates.

As early as 1993, the Ministry of Finance for the first time passed 19 national debt first-level self-employed merchants and adopted the net price transaction method through the STAQ system. The trial of net debt price transactions through the Shenzhen and Shanghai Stock Exchanges has important positive significance:

(1) The implementation of net government bond transactions is in line with international practice, and in particular, the implementation of net price transactions for interest-bearing government bonds is a relatively common international practice and is the basic experience of developed countries in the national bond market.

(2) The transaction price under the net price of government bonds always fluctuates around the face value of government bonds, reflecting the impact of changes in market interest rates on the prices of government bonds.

(3) The net price transaction method can clearly outline the seller's profitability and the buyer's payment cost in the government bond transaction, so that the interests of the buyer and the seller can be made clear. For the seller, the gains include the transaction price paid by the buyer and the interest due during the holding period. For the buyer, the costs include the payment of the transaction price and the interest due to the seller during the holding period.

(4) The implementation of net price transactions can distinguish between capital gains and interest gains in treasury bond transactions, and facilitate tax processing. According to the "Treasury Bill Regulations of the People's Republic of China": "Interest income from government bonds enjoys tax-free treatment. Under the net-price transaction method, the transaction price of national bonds is separated from accrued interest, which is beneficial to taxation financial treatment. ^[3]