Fixed Income Business Types
In fact, most of the fixed income businesses in the market are essentially divided into three categories:
1. Proprietary Fixed Income Business
Proprietary, typically, the proprietary business of a securities firm may involve investment trading, as well as sales trading, which is relatively flexible. There are also some applications for market-making transactions. Moreover, it includes intermediary businesses because it can leverage at a higher level. Since we generally know that the leverage for our product accounts may be within two times, there are fewer restrictions, which is the advantage of proprietary business. Of course, there are some sales trading types that require coordination among various functions.
2. Proprietary Department with Primary Dealers
Primary dealers are actually engaged in general proprietary business while also undertaking tasks in the open market. They need to complete some transaction tasks designated by the central bank, such as the People's Bank of China, and convey some monetary intentions. For example, when the central bank wants to inject liquidity or conduct MLF (Medium-term Lending Facility), primary dealers are required to cooperate. The final price reported back to the central bank provides a reasonable interaction in the money market, so it has a certain policy function.
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3. Asset Management Category
Asset management actually has a very broad scope, including trusts, securities asset management, bank asset management, and public funds, which are also considered asset management, all of which are managing wealth on behalf of clients.
Asset management products are relatively more stringent, with more business restrictions, so their leverage is lower. What can't be invested? What can't be invested? What is the proportion of bond investment? Are there double ten restrictions? What does double ten mean? The bond you invest in accounts for 10% of its own issuance scale, and at the same time, it must be 10% of the proportion of your own account. So there is a restriction, and many current asset management products have such requirements. In addition, many asset management institutions adopt a model of separating investment and trading, where the investment manager issues orders to the trader, and then the trader executes them. This is generally the model, which may be better for small institutions, less ambiguous, but larger institutions are more strict.
The Relationship Between Clean Price and Full Price?
We usually look at the clean price, but we don't know what the full price is. This full price is the clean price plus the accrued interest. What is accrued interest? Because interest is paid semi-annually or annually, it is called accrued interest, with 11 months of interest, plus the clean price, you might think the bond price is very high, but in fact, it may not be very high, because most of it is interest. So why do we use the clean price in market price discussions? Because it is not disturbed, it is not disturbed by the accrued interest.Why does interest interfere? Different debts, even from the same entity, have varying interest rates for different issuance times, which might differ by a month, yet in terms of duration, there isn't much difference. This could be due to different market environments; everyone has bought, and then no buyers can be found, which might lead to a high interest rate. Therefore, it is considered an interference, a disturbance to the bond price itself, which is why there is a distinction between clean price and full price.
Yield Curve Function
1. Bond Pricing
When bonds are generally traded or issued, their pricing is determined by the fluctuations in the yield of similar bonds and the valuation yield curve of the China Bond or China Securities.
2. Analyzing Price Trend Changes
The yield curves of bonds with different types and maturities will also change differently, which can be used to analyze future bond selection and investment direction. The difference between yield curves of different types of bonds can also yield a spread curve.
Bond Quotation Terminology
Broker: The intermediary, the broker, is the core institution of the quotation terminology, linking the demands of all parties.
Bid: The buyer's quote.
Ofr: The seller's quote.Given (GVN): After the buyer states their price, the seller accepts it unconditionally - bid - given
Taken (TKN): After the seller states their price, the buyer accepts it unconditionally - offer - taken
TRD: Both the buyer and seller make a compromise on their prices
Done: The buyer and seller's prices match directly
Yours: The intermediary calls "yours" to the buyer who has been given, and the seller can also call "yours" to the bid price reported by the intermediary
Mine: The intermediary calls "mine" to the seller who has been taken, and the buyer can also call "mine" to the offer price reported by the intermediary