This article will explain to everyone what bonds are.
I. Definition and Characteristics of Bonds
Bonds are debt instruments issued by entities such as governments, financial institutions, and industrial and commercial enterprises to raise funds directly from society. They promise to pay interest at a certain rate and repay the principal under agreed conditions.
Characteristics:
(1) Repayability
(2) Liquidity
(3) Safety
(4) Income potential
II. Classification of BondsClassification of Bonds
1. Discount Treasury Bonds and Interest-Bearing Treasury Bonds
Discount and interest-bearing treasury bonds are categorized based on the different methods of interest payment for government bonds.
Discount Treasury Bonds refer to government bonds that do not have coupons attached to them. They are issued at a specified discount rate, at a price lower than the face value of the bond, and the principal and interest are paid at the face value upon maturity. The difference between the issue price and the face value of the discount treasury bond is the interest of the bond.
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For example: An investor subscribes to a 5-year government bond with a face value of 100 units of currency at an issue price of 70 units of currency. Then, upon maturity in 5 years, the investor can redeem the bond for 100 units of currency, and the 30-unit difference is the interest of the government bond, with an average annual interest rate of 8.57% (i.e., (100-70)/70/5 * 100%).
Interest-Bearing Treasury Bonds refer to bonds with coupons attached to them, which pay interest according to the interest rate and payment method specified on the bond's face.
2. Fixed-Rate Bonds and Floating-Rate Bonds
Bonds can be distinguished as fixed-rate bonds and floating-rate bonds based on whether the bond interest rate changes during the repayment period.
3. Treasury Bonds, Certificate Treasury Bonds, Bearer (Physical) Treasury Bonds, and Book-Entry Treasury Bonds
Treasury bonds are a type of government bond issued by the central government to raise fiscal funds. They are debt instruments issued by the central government to investors, promising to pay interest over a certain period and to repay the principal upon maturity.In terms of bond forms, the national bonds issued in our country can be divided into three types: certificate bonds, bearer (physical) bonds, and book-entry bonds.
Certificate bonds are a type of national savings bond, which can be registered and reported lost. The debt is recorded on a "certificate bond receipt" and cannot be traded on the market. Interest is calculated from the date of purchase.
Bearer (physical) bonds are a form of physical bond, with the debt recorded on a physical certificate. They come in varying denominations, are not registered, cannot be reported lost, and can be traded on the market.
Book-entry bonds record the debt in book form and are issued and traded through the trading system of the stock exchange. They can be registered and reported lost. Investors must have an account at the stock exchange to trade book-entry securities.
4 Corporate Bonds
Corporate bonds are a type of debt agreement issued by joint-stock companies, with the company promising to repay the principal and pay interest at a predetermined rate on specific future dates.
There are several main categories of corporate bonds:
(1) Based on whether they are registered, they can be divided into: ① registered corporate bonds ② bearer corporate bonds
(2) Based on whether the holder participates in the company's profit distribution, they can be divided into: ① participating corporate bonds ② non-participating corporate bonds
(3) Based on whether they can be redeemed early, they can be divided into: ① callable corporate bonds, ② non-callable corporate bonds.(4) Based on the purpose of issuing bonds, they can be categorized into: ① Ordinary corporate bonds ② Reorganization corporate bonds ③ Interest-bearing corporate bonds ④ Deferred corporate bonds
(5) Based on whether the issuer grants the holder the right to choose, corporate bonds can be divided into: ① Corporate bonds with embedded options ② Corporate bonds without embedded options
5 Financial Bonds
Financial bonds are bonds issued by banks and non-bank financial institutions.
According to different criteria, financial bonds can be divided into many types, with the most common classifications being the following two:
(1) Based on the method of interest payment, financial bonds can be divided into coupon-bearing financial bonds and discount financial bonds.
(2) Based on the issuance conditions, financial bonds can be divided into ordinary financial bonds and progressive interest financial bonds. Ordinary financial bonds are issued at par value, with principal and interest paid in one lump sum at maturity, typically with terms of 1 year, 2 years, and 3 years. The interest rates for progressive interest financial bonds are not fixed, varying at different time intervals and increasing year by year.
6 Debt-to-Equity Swap
The definition of debt-to-equity swap is the conversion of debt into equity for state-owned enterprises, which means transforming the original claims of commercial banks on eligible state-owned enterprises into equity held by asset management companies for the enterprises.