Are bonds risky?

Of course, bonds, like other investment tools in the securities market, face a series of risks. Even buying government bonds called "Phnom Penh bonds" is risky.

Specifically, there are the following risks:

Credit risk: also known as default risk, refers to the possibility that the bond issuer fails to pay the principal and interest of the bond according to the contract, which will bring losses to bond investors.

Interest rate risk: refers to the risk of bond price fluctuation caused by interest rate changes.

The price of bonds changes with the change of interest rate. When interest rates rise, bond prices fall; When interest rates fall, bond prices will rise. Inflation risk: All kinds of bonds face inflation risk, because interest and principal are nominal amounts that do not change with inflation level.

As inflation leads to price increase, the purchasing power of interest and principal earned by bondholders decreases.

Liquidity risk: refers to the investment risk brought by the premature bondholders who can only realize the bonds at a price significantly lower than the market value.

Deadly bonds usually have greater liquidity risk and reinvestment risk:

Refers to the risk that the interest recovered from interest-bearing bonds or the principal recovered earlier than the maturity date can only be reinvested in bonds with the same attributes at a lower interest rate than the original bond yield to maturity.

Early redemption risk: also known as repurchase risk, refers to the risk brought by bond issuers to redeem bonds with early redemption clauses before the maturity date of bonds.

Extended data:

Bond investment refers to an investment method in which bond buyers (investors and creditors) invest capital in the form of buying bonds, charge fixed interest to bond issuers (borrowers and debtors) at maturity and recover the principal.

Factors affecting bond investment income:

Coupon rate of (1) bonds

The higher the bond coupon rate, the higher the bond interest income and the higher the bond income.

The coupon rate of bonds depends on the market interest rate at the time of issuance, the maturity of bonds, the credit level of issuers, the liquidity level of bonds and other factors. The higher the market interest rate at the time of issuance, the higher the coupon rate;

The longer the bond term, the higher the coupon rate; The higher the issuer's credit rating, the lower the coupon rate;

The higher the liquidity of bonds, the lower the coupon rate.

(2) Market interest rate and bond price

From the calculation formula of bond yield (bond yield = (due principal and interest and-issue price)/(issue price× repayment period )×100%), we can know that the change of market interest rate is inversely proportional to the change of bond price, that is, when the market interest rate rises, the bond price drops, while when the market interest rate falls, the bond price rises.

The change of market interest rate causes the change of bond price, which brings price difference to bond trading.

When the market interest rate rises, the bid-ask spread of bonds is positive, and the investment income of bonds increases; When the market interest rate decreases, the bid-ask spread of bonds is negative, and the investment income of bonds decreases.

With the rise and fall of market interest rate, if investors can buy and sell bonds in a timely manner, they can get greater bond investment income.

Of course, if investors buy and sell bonds at the wrong time, it will also reduce the investment income of bonds.

Associated with the face value of bonds and coupon rate, when the bond price is higher than its face value, the bond yield is lower than that of coupon rate.

On the contrary, it is higher than coupon rate.

(3) the investment cost of bonds

The cost of bond investment can be roughly divided into three parts: purchase cost, transaction cost and tax cost.

The purchase cost is the amount paid by investors to buy bonds (the product of the number of bonds purchased and the price of bonds, that is, the principal); Transaction costs include brokerage commission, transaction fee and transfer fees.

Interest income from treasury bonds is tax-free, but interest income from corporate bonds also needs to be taxed, and institutional investors also need to pay business tax. Taxation is also an important factor affecting the actual investment income of bonds.

The higher the bond investment cost, the lower the investment income.

Therefore, the bond investment cost is a factor that investors must consider when comparing and selecting bonds, and it must also be deducted when calculating the actual yield of bonds.

(4) Market supply and demand, monetary policy and fiscal policy.

Market supply and demand, monetary policy and fiscal policy will all have an impact on bond prices, thus affecting the cost of investors buying bonds. Therefore, market supply and demand, monetary policy and fiscal policy are also factors that cannot be ignored when we consider investment income.