Bond product description

When buying health medicines, few people are willing to delve into the pharmacology. But Niuniu reads the prescription manual every time to get a general idea of what the drug can treat, how to take it, and its potential side effects.

It is said that choosing to invest in bonds is like buying health care medicine, and there is also a prospectus for bond recruitment, which will clearly specify the term, interest rate, issue price and other terms of the bond, warning the risk in advance and how to deal with the default. But the people who can read this manual are werewolves.

There is a complex and boring soul between the lines, so it's no wonder that few people ask about it except for experts. Almost all of us got on the bus so vaguely that we didn't know why it turned over later.

In order to save you from the wrong car in time, Niuniu will pick out the important information in the manual today-how to look at the income and return time? What do you think of risks and side effects?

01 efficacy: what is the benefit?

Like bank deposits, the yield depends on the interest rate, the interest rate of the bond is called the "coupon rate", and the principal that can be recovered even when it is due is called the "par value".

For example, the contract form of China's five-year treasury bonds states:

To put it simply, if Niuniu buys a face value of 100 yuan and a coupon rate of 3%, then this year's income will be 3 yuan. Generally speaking, the bonds issued in China generally have a face value of 100 yuan.
And China Evergrande Group's short-term bondsThe coupon is as high as 6.25%.Investors who have strong risk tolerance and pursue high returns are more attractive.

02 taking time: what do you think of the return?

The maturity of debt service varies from a few months to decades. The "maturity date" is an indicator of your return of principal and interest. Generally speaking, the maturity date is regarded as short-term within 1 to 5 years, medium-term for 5-12 years, and long-term for more than 12 years.

If Niuniu bought a five-year bond today. During these five years, there will be an interest payment for each fixed period, and the principal will be harvested happily when it expires. Ideally, the income distribution might look like this:

There are two indicators to measure returns here, one is the "current rate of return", which is the idealized data used to tempt you in the manual, and the other is the "maturity rate". That is, the final rate of return that takes into account factors such as compound interest, resale differences between investors, inflation and so on, taking into account the value of time.

03 side effects: great betrayal? The coquettish operation of the company's prepayment

It seems that the love between heaven and earth will end because of the change of heart of one party, and the bond investment that seems to be profitable will also betray investors because of the coquettish operation of the issuer.

For example, some "prepayable bonds" allow issuers to repay some or all of the debt before the maturity of the bond at an agreed redemption price, and then issue new bonds at lower interest rates. This has greatly reduced the financing costs of enterprises, but also caused losses for investors-in the face of falling market interest rates, it is not easy to find a good place to recover funds in advance. Many people fell into this hole during the dotcom bubble in 2000 and the subprime crisis in 2008.

Therefore, the indicator of "minimum rate of return" is very important. It is the rate of return guarantee that a company must give to investors when it is redeemed in advance. You can better protect yourself by understanding the bottom line rules of the bond world.

Conclusion

Although bond prospectuses are boring, you should take a closer look at the most basic factors such as returns, returns and potential risks before investing in bonds. After all, the bond world is complex and changeable, and if you want to go to the stupid white and sweet people, it is likely to be cool because of the coquettish operation of the issuers.