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The price linkage bonds

Author: LiuYunLin ShenXin From: www.yourpaper.net Posted: 2007-11-19 03:29:16 Read:
Abstract the national debt is a stable income, extremely low risk investment tool, but the influence of traditional Treasury yields are susceptible to inflation, thus greatly reducing its appeal.But the price of bonds can be linked up with the price increase, to offset the effects of inflation, interest rate guarantee its actual purchasing power with its ticket consistent.Price linkage bonds is particularly suitable as pension funds and insurance funds requires high investment security investment varieties.
Keyword inflation protected bonds (TIPS) price linkage bonds pension investment

Price structured notes, which are linked interest bonds and a special product prices, such as oil companies to issue bonds interest rates can be and oil prices linked, not only allows investors to share the benefits of rising oil prices, and interest payments can be well and the company's earnings. Together, so that the corporation in the interest payment on the risk of small.For example, the power company bonds may be associated and price; Steel Corp bonds interest rates can and steel prices linked.Price linkage bonds and discussed in this paper, the consumer price index (CPI) bond.
From an international point of view, the price of structured notes first appeared in some countries with high inflation, such as Brazil, Israel, Turkey and other countries, and achieved very good results.In 1981, the United States of America in Britain in 1997 began issuing such bonds.Now, the total issue amount of the two countries of such bonds, has accounted for the world total issue amount of the 80%.
In the issue prior to 1996, the United States Treasury Secretary Robert Rubin put this kind of product is called "inflation protected bonds" (Treasury inflation protection security, TIPS), released in 1997 January, and the use of "inflation index bonds" (Treasury inflation-indexed security, TIIS) this name.However, market participants are still like to use TIPS to call it.There are several other similar call.In this paper, the use of the term "price linkage bonds", the main reason is: one is the bond fluctuate with the price index, income increase with inflation occurred, may also decrease with deflation occurs.Therefore, known as the "inflation", biased; two, rising prices does not necessarily mean that inflation, which is not always happen, but the price is always in change.With the "price changes", can represent the general situation; three is similar to bonds issued in Japan, known as the "price linkage bonds", so it is easy to unity, reference and comparison.
1 price linkage bonds meaning and generate
The traditional bonds AAA-rated and coupon rate is usually fixed, therefore, inflation, will affect the real return bond holders.If the inflation rate is higher than expected, the debtor (the traditional bond issuers benefit of creditors (traditional), bond redemption or investors).
Price linkage bonds, is a kind of used to hedge against inflation risk financial innovation tool.Its general structure is first according to the rate of inflation to adjust the bond, in a fixed coupon rate of interest on the adjusted principal.For example, can be set 10 years period of price linkage bonds annual coupon rate of 3%, the rate of price increase of 2%, a unit of 100.Then, in the 1 years after the payment date, cope with the coupon is divided into following two steps: the first step, to calculate the adjustment of principal.After the adjustment of the principal = denomination * inflation ratio = 100 * 1.02 = 102; the second step, to determine the interest.Interest payable = adjusted principal * scheduled coupon rate = 102 x 0.03 = 3.06.In addition, 10 years to repay, should also principal for 100 * 1.0210 = 121.9 yuan (hypothesis 10 years inflation rate was 2%.).
Thus, interest and redemption value is automatically adjusted along with the change of inflation, real return rate of its impact will not be inflation, so that the bond buyers from inflation risk, and obtain real income stability.
2 price linkage bond strengths of
Price linkage bond value and can be adjusted, as the inflation rate in this way, even if the price increases, intrinsic value will not damage the bond (or purchasing power).According to foreign experience, the issuance of bonds price linkage, is based on the following considerations.
The 2.1 issue price linkage bonds can reduce the government's borrowing costs
For the traditional bond buyers, real income they will receive the rate varies with the change in inflation.Bond buyers will be because the real rate of return of the unstable (i.e. risk) and demand a compensation for risk, namely the request to raise the debt interest or redemption value.This part of the compensation is called inflation risk, it is increased by the presence of government bond issuance costs.If the government issuing price linkage bonds, because the bond buyers do not have to bear the risk of inflation, the government does not need to pay the inflation risk, thereby reducing the government's borrowing costs.Campbell and Shiller empirical studies show that the inflation risk premium, compensation in 0.5% ~ 1%.Sack and Elsasser study, three TIPS the United States in 1997 the Ministry of Finance issued saves the cost of debt of about $1200000000.
2.2 price linkage bonds provide expectations of inflation and
The inflation forecast is very theoretical and practical significance to investors and policy makers, investors need to invest the real yield a reasonable judgment, and macro-control departments require an accurate way to understand market inflation expectations in order to improve the effectiveness of the inflation control policy.When the investor's risk attitude is neutral, and the bonds in the market liquidity is very strong, the price linkage yields, is equal to the traditional Treasury yield minus the expected inflation rate, the expected inflation rate = traditional bond yields and prices linked bond yields.
If the issue of various maturities (for example, 3 years, 5 years, 10 years, 15 years...)The common bond and price linkage bonds, and in the same time span of the ordinary treasury bonds market and price linkage yields were compared, the market can obtain different time span for the future rate of inflation expectations, the market expectations of inflation is the way to get it.Of course, due to the impact of tax and liquidity and other factors, makes the comparison between the common bonds and prices become linked bonds complex.However, for the decision-making departments concerned, this comparison is still very important, the government can make more accurate judgment of the inflation, and take appropriate monetary policy.
The 2.3 issue price linkage bonds, contribute to the establishment and development of a long-term bond market
The people of future inflation uncertainty worry degree increases with the increase of span of time, which makes the issuance of long-term bonds of the cost is very high.In the condition of high inflation, the long-term bond market is more difficult to build.And the issue of price linkage bonds will change this situation.In fact, Chile, Mexico and Poland price linkage bonds issued to this.
2.4 price linkage of the issuance of treasury bonds will provide a new investment channel for the investors, and will promote the diversification of financial products and
Price linkage bonds especially plays an important role in the pension fund.In the endowment insurance, pay-as-you-go and funding system, each has its advantages and disadvantages.The advantages of the pay system is no inflation worries, but due to the aging of the population problem is serious, the intergenerational support economic pressure is too large, the social security fund run behind one's expenses, finance unbearable, declared the pay-as-you-go system failure.Compared with pay-as-you-go, funding advantages against the aging of the population, but it's the biggest problem is the problem of value.The fund can only value against inflation risk, the fund only added to show the superiority of the system of accumulation, it may establish long-term mechanism of endowment insurance fund balance mechanism and sustainable development.While the price linkage bonds, provides a feasible investment channels for increasing the value of the fund.
Originally on the pension investment to hedge inflation tool, generally consider the stock.However, studies have shown that, in the stock market of China, there is only a weak positive correlation between real stock returns and inflation, the ideal value goods in stock is not a hedge against inflation risk.That is to say, when inflation rises, the stock of nominal yields cannot make one one corresponding adjustment according to the change in inflation, real stock return eventually decline, the stock will not give investors reduce
The losses caused by inflation.
Study abroad also has the similar conclusion.Over the past 30 years (from 1975 January to 2003 December) data, both in the United States and Japan, between stock returns and inflation, and no correlation is very strong.
2.5 price linkage bonds can spread the investment risks of
According to portfolio theory in general, form a combined investment varieties correlation is small, the more conducive to the safety of.Through the study found, correlation price linkage bonds with traditional financial assets is very low.Therefore, investors put price linkage bonds in their portfolios, and other financial assets collocation are together, can play the role of risk diversification.
3 price linkage debt problem in
In addition to the above advantages, the price linkage bonds also exist some a fly in the ointment.
3.1 price linkage bonds "lag" problem of
In the calculation of the price linkage bond interest and redemption value, to use the price index.Statistics and calculation of price index requires a certain amount of time, which makes the price linkage bonds which can be used in the price index was slightly "expired", which "delay".Ability to delay phenomenon will affect the price linkage bonds against inflation, delay and more serious, this ability is weak.
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