How do you make money on bond trading and earn money?

1comment 2019-04-15 10:27:18 source:Shanghai Securities News Author:Business park wave Just do it next week! Steady!

You may be rightBond fundThe impression is good, I think its risk is controllable, and the benefits sometimes have unexpected surprises, but you may never have thought about the two questions in the title - how do bond trading make money? Who earns money?

Earn money from financing parties vs. earn money from counterparties

Who is the money to make a bond trade?

First, we need to understand the composition of the sources of bond trading income. It is divided into two parts: the first part is the coupon and the second part is the capital gain. The coupon is the interest paid by the bond issuer or the financier to the holder. The interest is calculated on a daily basis, and the holder takes one day's interest on a day's bond. Generally speaking, the coupon is determined by bidding at the time of issuance, so the coupon for each day is fixed during the bond. Capital gains are the difference between the net purchase price caused by market volatility. The face value of bonds is generally 100 yuan / piece, and will remain unchanged during the duration, but the net price may be less than 100 yuan during the period of existence, may also be higher than 100 yuan, with the market.

Therefore, there are two sources of money for bond trading: one is to earn money for the coupon, that is, to earn money from the financier. The biggest risk in this part is the credit risk of the financier. The second is to make money from capital gains. This part of the profit and loss is not borne by the financing party. In fact, it is the money to make a counterparty. The biggest risk is interest rate risk. The fluctuation of net prices due to fluctuations in market interest rates is the source of Beta's earnings. Of course, changes in bond credits and liquidity can also lead to fluctuations in net prices, which is the source of Alpha's earnings.

Earn money for Alpha vs earn money for Beta

Alpha income is a profit-making opportunity caused by a voucher, mainly caused by a change in the credit qualification and liquidity of the voucher. For example, the issuer's credit qualifications, bond credit enhancement measures, and increased liquidity will all lead to a rise in the net price of bonds, and vice versa.

Beta income isBond MarketThe resulting opportunities for making money are mainly caused by changes in market interest rates. For example, if the market interest rate declines, the net price of bonds will rise, and vice versa. The Alpha factor of a bond varies according to the level of the rating. The higher the rating, the smaller the Alpha factor, the lower the rating, and the greater the Alpha factor. For example, forNational debtIn this case, since the credit rating of the national debt has reached the highest level, there is no possibility of further improvement in credit and liquidity. Therefore, the Alpha factor is basically negligible, and the main factor should be focused on. For low-rated bonds, the Alpha factor is more important than the Beta factor. In extreme cases, some bonds with very poor credit qualifications do not react to changes in market interest rates.

However, in actual investment, unless there are some special circumstances, it is generally not going to invest in bad or poor bond assets. This is doomed to realityBond investmentMore attention is paid to the Beta factor, which is also the main reason for the difference between equity investment and research. Bond investment is more concerned with the changes in market interest rates and their analysis. Therefore, macroscopic research on economic fundamentals, monetary policy and capital is more important.

Consistent expectation VS expected difference

Whether it is earning Alpha money or earning Beta money, it can be classified into two situations: unanimous expectations and expected differences. Price changes under expected conditions, that is, sudden factors outside the market expectations lead to changes in market interest rates, credit qualifications, liquidity, etc., resulting in price changes. This is easy to understand.

The question is, how do you explain the price changes in a consistently expected situation? If the market is fully effective, the current price should already reflect the consensus expectations of the market. However, the reality is often not the case. For example, under the economic downturn, the market is unanimously expectedCentral bankIn the next year, the interest rate will be cut three times, each time 25BP, totaling 75BP. However, will the market interest rate drop 75BP immediately? (Assume that the downward rate of market interest rates is consistent with the rate cut by the central bank) Of course not. The central bank's interest rate cuts will generally create a channel, each time a small interest rate cut, and the market interest rate will also follow the central bank's interest rate cut channel, down 25BP each time the interest rate cuts, through three times to complete this channel. So, this is related to the role of the central bank in the bond market.

It is precisely because of the above characteristics of the bond market that there is still a possibility of a gradual change in price under the consensus expectation, which means that there is sufficient time to participate in the trading after the price change trend is formed, which provides space for the right side transaction, and Trading on the left is often based on price movements under expected spreads.

Amortized cost method vs. market value method

The above talked about the issue of who makes money in bond trading, how to make money, and finally talks about how to make money. The ticket is obtained simply by taking a one-day coupon for each day of the day and counting it daily. Capital gains have different ways of achieving. For example, today, a bond with a remaining maturity of one month is bought at a net price of 97 yuan per piece. After a week, the net price rises to 98 yuan. If it is sold at this price, then Realize 98-97 = 1 yuan of capital gains.

So, how do you allocate this 1 yuan of capital gains? The amortized cost method and the market value method make different income distribution methods. To put it simply, under the amortized cost method, first calculate the difference between the repayment principal amount of 100 yuan on the maturity date and the purchase net price of 97 yuan to obtain a capital gain of 3 yuan, and then put the 3 yuan (according to the actual interest rate method, Is averaged) every day of the month in which the remaining period is allocated (the actual amortization amount is slightly different from the average) until the due date or the sell-off date; if it is sold before the due date, the proceeds on the day of the sell-off = The selling price at the time was 98 yuan - the amortized cost at that time (slightly higher than 97 yuan), which means that the 1 yuan was almost evenly distributed. Under the market value method, there is no capital gains during the period from the date of purchase until the date of the sale, and no capital gains are included in the income until the day of the rise to 98 yuan, and the capital gain of 1 yuan per day (even if there is no sell-off, the valuation rises) To 98 yuan, the capital gains are also realized on the same day). Through the above examples, we can clearly see that the same capital gains of 1 yuan, the distribution method under the amortized cost method is smoother, and the market value method is more volatile (achieved in one day).

Write here, you may ask, in the current situation, the bond transaction should be to make money from the financing party or earn money from the counterparty? Do you want to earn Alpha money or earn Beta money? Is the choice to trade on the left or on the right? Is the choice of amortized cost method or market value method?

In this regard, different investment managers and different products may give different answers. As far as I am concerned, I prefer to trade on the right side. When the liquidity tide recedes, I must be in awe of the market, take advantage of the trend as much as possible, and choose the opportunity instead of making adverse selection. The upcoming China-Thailand blue moon is shortDebt baseFor Jin, in the current low interest rate environment, the main goal should be to earn money. As for the way income is realized, the market value rule is the mainstream choice.

Keyword reading:Bond trading Capital gains Bond fund Alpha Bond assets

Editor in charge: Lu Shan RF10057
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