Stock Market And Bond Market

As is well known, recently the Chinese capital market staged a double game of ice and fire. On one hand, the stock market saw sesame blossom and rise steadily, and the Shanghai Composite Index rose from 3100 points at the beginning of the year to 373800. On the other hand, the bond market seemed to be passing through like a cold wind, with a low fan. It is said that the stock market is like a fierce horse that can travel thousands of miles a day, and bonds are like an old cow with steady steps, but there is no unexpected joy. The former is a game for adventurers, while the latter is a harbor for defenders. The former has the excitement of being a roller coaster, and the latter has the tranquility of a carousel.
So today, let's borrow stocks and talk about bonds. Behind the frenzy of the stock market, is the bond market experiencing a bloody storm? How will bonds, a silent whale twice as big as stocks, affect our wallets? From treasury bond to corporate debt, this article will let you understand the risks and opportunities in the bond market.
Let's officially begin to unveil the mysterious veil of this capital giant's bonds together.
Let's first talk about bonds. What exactly is it? Simply put, a bond is a standardized promissory note. Imagine a company wants to expand production, a government wants to build roads, and what if they don't have the money? Just like when your family wants to buy a house and marry a wife, of course it's just one word, borrowing. However, unlike personal borrowing, governments and enterprises usually require a huge amount of funds and involve a large number of IOUs. In order to improve efficiency and facilitate the management of a standardized IOU, it was born. Each denomination of 100 yuan clearly states the term, interest rate, and borrower, which is called a bond. And stocks, on the other hand, are a certificate of investment. Buying stocks is equivalent to becoming a shareholder of the company. If the company profits, we can enjoy dividends, but if the company loses, we also have to share the risk. As the saying goes, if you want to wear a crown, you must bear the weight. High returns often come with high risks. In the world, there is never a free lunch. Therefore, to summarize the difference between stocks and bonds in one sentence, bonds are bonds. After we buy them, we become creditors, and the other party must repay the principal and interest. Therefore, buying bonds as creditors is a behavior of ensuring income for many people. And stocks are shares. After we buy them, we become one of the bosses of the company in a sense. We have to go through thick and thin with the company, share weal and woe. Holding stocks is like becoming a partner of this enterprise, and we can only share profits and losses without regrets.
Of course, they also have one thing in common, that is, they can all be listed and traded. For example, if we suddenly need money in a hurry, we can sell the treasury bond at the market price to solve the urgent problem. In this way, the source of bond returns is very clear. One is the red envelope received regularly based on the coupon rate, and the other is the buying and selling price difference. If you buy low and sell high, you will earn capital gains.
In the same way, the income of stocks also comes from two aspects: the rise of stock prices and the dividends of companies. But bonds have a layer of safety pad more than the stock market. As long as the issuer does not default, the interest is stable. As for stocks, everyone knows that the price of stocks fluctuates violently. As for dividends, no one can guarantee that there will be dividends every year. Because of this stability, the size of the bond market is far larger than the stock market. According to wind data, the total size of China's bond market has exceeded 191 trillion yuan, and the total market value of the stock market has just exceeded 100 trillion yuan two days ago. The size of the bond market is almost twice that of the stock market,
It can be called the silent whale of the financial world. The bond market is not exposed, but it is huge. Of course, the bond market is not only treasury bond. Although the overall scale of the bond market is relatively large, if we peel off the cocoon, you will find that it is also composed of a variety of different issuers, and the risks of different types of bonds are also very different. For example, when treasury bond is mentioned, many people will think of it first, because it has national credit as an endorsement, which is relatively reliable, but treasury bond is not the only one in the bond market, according to We can divide bonds into two main groups,
Of course, the first sect is the famous and decent sect from the national team. The issuing subject of this kind of securities firm has a very high credit rating, which can basically be regarded as an extension of the national credit. It is mainly divided into three categories. First, we just mentioned that treasury bond is issued by the central government, with the highest credit rating. There is no doubt that the leader of this sect can be said to be a wind from east to west, north to south, and I am firmly rooted. Secondly, it is the local government's issuance of local bonds, which are generally used for road and bridge construction and infrastructure projects. In recent years, we often mention the conversion of bonds, and the key target is them. Others are policy bank bonds issued by the National Development Bank, the Agricultural Development Bank, the Export Import Bank, and so on. This kind of bonds mainly serves national strategies such as rural revitalization along the the Belt and Road. The above three types are also collectively called interest rate bonds. Why do we call them interest rate bonds? Because we don't have to worry about investing in them, they will default. The only thing we need to worry about is whether the interest rate level of the entire market will fluctuate, because the rise and fall of interest rates will directly affect the price of bonds. We will explain this in detail later. So its risk mainly comes from market interest rates, hence it is named interest rate bonds.
So the second largest sect is credit bonds, which are a mix of good and bad. There are various experts here, in addition to the national team, many financial institutions and enterprises also issue bonds. This is like the experts and lone wolves of various sects in the martial arts world, whose strength varies. Therefore, this credit bond can be divided into several types. The first type is financial bonds, which are issued by financial institutions such as banks and securities firms. They have a strong financial background in the underworld and the risks are relatively controllable. The second type is corporate bonds, also known as enterprise bonds. They are issued by a wide range of entities, from real estate companies to cutting-edge technology companies. At this point, we need to develop a pair of sharp eyes to understand the past and present of the enterprise, as well as the flow of funds. Otherwise, we may accidentally hit some companies that appear calm on the outside but lack the ability to continue generating and making money in mainland China. In the end, they may cause you to lose all your capital together. Therefore, if we want to invest in this type of bond, we not only need to consider interest rate risk, but also... We also need to weigh the credit rating of this issuer, how much is their credit rating, This is why we call this type of bond the core of credit bonds. Naturally, in order to compensate for the credit risk we bear, they usually offer higher interest rates than interest rate bonds of the same maturity, and this higher return is professionally referred to as the risk premium.
So when it comes to risk premium, we may often hear some industry jargon about yields rising several basis points. Don't worry, I will translate it for you, BP, If interpreted in Chinese, it is the basis point. If we say the 5 basis points where the yield rises, You can understand its meaning as a 0.05% increase in interest rates. As for the coupon rate and yield to maturity, let's give an example to help everyone understand. If we buy a one-year bond today with a face value of 100 yuan and an interest rate of 3%, this 3% is the coupon rate. It is like the opening of a bond, and it will not change from issuance to redemption. As long as we hold it for one year after maturity, your 100 yuan principal may receive an interest of three yuan. However, if the central bank suddenly announces a rate cut the next day, the interest rate of newly issued bonds of the same type in the market is only 2.5%. This means that the new bond you buy for 100 yuan now may only have an interest rate of one year. At 2.5 yuan, the old bond in our hands with a 3% interest rate became a hot commodity because its interest rate was higher. If someone wants to buy from us, they must buy at a higher price, such as 105 yuan, which means the price of the bond in your hand has risen. On the other hand, if the central bank raises interest rates, the interest rates on new bonds will be higher, and our old bonds will depreciate. We may have to lower our prices to sell them
So everyone needs to remember a core logic, which is that market interest rates and bond prices are like two ends of a seesaw, starting from one end and inevitably falling from the other. Here, we need to introduce an important concept, the yield to maturity, also known as YTM, It refers to the annualized yield obtained if we buy a bond at the current market price and hold it until maturity. It takes into account the buying price, face interest, and remaining maturity. For example, if someone spends 105 yuan to buy our 100% interest bond principal, the cost for them is 105 yuan. After one year, they will recover 103 yuan, which is the principal and 3 yuan is the interest. They will make a net profit of 2.5 yuan, and their yield to maturity will be 2.5 yuan ÷ 105 yuan, which is about 2.49%. This is the second logic of bonds. When the market interest rate decreases, the bond price increases, and the yield to maturity decreases, and vice versa.
Finally, we need to learn the most important knowledge about bonds, namely duration, which can be understood as the average time to recover the investment principal. For example, for one-year bonds, we need to wait one year to recover the principal with interest, while for three-year treasury bond, we need to wait about three years. Here we need to remember. The third core logic is that the longer the duration of a bond, the more sensitive and sensitive its price is to changes in interest rates. When interest rates are lowered, it lasts longer, and when interest rates are raised, it falls more sharply. This means that 30-year bonds have greater volatility than 10-year bonds. The reason for this is not difficult to understand. When market interest rates rise, a short-term bond that can recover principal more quickly is obviously more attractive than a long-term bond that takes longer to repay principal and interest. Therefore, this long-term bond needs a greater discount, meaning that if the price drops more, it may be able to sell. As for bonds, some people may ask why we said in the beginning that... The tide of the bond market can also have a certain impact on us ordinary people, Because we may have already become creditors without realizing it, taking many wealth management products of banks as an example. If we open the investment brochures of many wealth management products and study them carefully, we will find that the underlying assets of most of them are actually various types of bonds. Therefore, bonds are not something that can be ignored. They have long been an indispensable silent majority of our family wealth.
So you must be asking a question, what kind of environment is the spring of the bond market? It is usually a period of slow economic growth and moderate inflation, because the central bank tends to adopt loose monetary policies, such as interest rate reduction to stimulate the economy. According to the core logic we just mentioned, a downward trend in market interest rates will drive up the price of the entire bond market. On the contrary, when the economy is overheated and inflation is high, the central bank is likely to raise interest rates. For the bond market, it may have entered a cold winter. Take the yield of the 10-year treasury bond bonds of the United States as an example, the performance in recent years is actually a classic case. At the beginning of 2020, in response to the impact of the epidemic, the Federal Reserve sharply cut interest rates, then the yield will significantly decline, and then the price of bonds will rise Starting from 2022, everyone knows that in response to the current high inflation in the United States, the Federal Reserve has entered an aggressive interest rate hike cycle, with yields rising sharply. In recent years, it can be said that there has been a V-shaped reversal.
Looking ahead to the future, our economy is still in an important stage of weak recovery and transformation, and the tone of monetary policy remains very stable. The central bank is not in a hurry to raise interest rates, so from a macro perspective, the bond market may not have reached the point where a storm is about to come.
But in the short term, the interference of market sentiment cannot be ignored. When the stock market is too hot, it may create a certain pumping effect on the bond market. However, for truly smart investors, even if the stock market is doing well, they will not ignore the value of bonds. The two of them are not simply related to each other. Time and people are constantly pushing each other, and the winter solstice brings spring. The cycle and fluctuations of the market are actually normal. Even if the stock market is doing well, the value of bonds is still commendable in this process.
On the one hand, a decrease in bond prices means an increase in the yield to maturity, which means we can buy bonds at a cheaper price and lock in future interest income to match the value, which will actually increase. On the other hand, the stock market is known for its volatility, while the low volatility of the bond market precisely forms a hedge, making our overall investment experience smoother. Therefore, it is advisable to have a broad perspective and not put all your eggs in one basket. Every fluctuation in the capital market is profitable for someone,
There are also people who have made a mess of losses in the midst of the market noise, so learning to stay clear headed in the midst of it may be the prerequisite for us to achieve stability and success,
In short, like the ups and downs of life, the cloud track of the Count of Haiqi flows deep, just like the accumulation of wisdom. True investment is not only about chasing after the wind, but also seeking value in the turbulence, hearing truth in the noise. Therefore, remember that there will be times when the wind breaks through the waves. Hang the cloud sail straight to the sea, and with a calm heart, you can obtain wealth in the river of wealth in order to walk more steadily and go further.