introduction
Bonds/debenture is a kind of financial contract, which is essentially a certificate of debt and has legal benefits. It is a way for enterprises, governments, banks and other institutions to raise funds from the society in accordance with legal procedures. Creditors can get some income in the process of bond investment. Bonds can effectively mobilize social idle funds and enhance capital liquidity, which is of great social significance.
1. what is bond risk
The risk of bond investment refers to the possibility and range of changes in the expected return of bonds. The risk of bond investment is widespread. All risks related to bond investment are called total risk, which can be divided into dispersible risk and non dispersible risk. The risks of bond investment of commercial banks mainly include credit risk, price risk, interest rate risk, purchasing power risk, liquidity risk, political risk and operational risk. Among them, credit risk, liquidity risk and interest rate risk are the most common.
2. analysis of existing bond trading risks in China
The main bond risks in China mainly come from three levels. On the legal level, China's bond related legal system is not as mature as that of developed countries; At the level of economic development, there are great differences in the level of regional economic development in China, and regional development is uneven; At the institutional level, the current institutional system is not mature enough
2.1 incomplete laws
The theory of legal incompleteness was formally put forward by Professor xuchenggang of London School of economics and Professor Pister of Columbia University School of law in 2002. This theoretical basic argument explains the contradiction between the inflexibility of law itself and the flexibility of people and cases.
In reality, society, market and economy are changing all the time. In contrast, the law is stable. The rapid change of the economic market has led to the relative incompleteness of the legal development. The incompleteness of the law will lead to two results, either insufficient deterrence or excessive deterrence. In the financial bond market, this problem is particularly prominent.
2.2 unbalanced regional development
According to the debt statistics at the end of 2018, the issuance of government bonds in China shows great regional differences. In terms of debt balance scale, the top five debt provinces are Jiangsu, Shandong, Zhejiang, Guangdong and Sichuan respectively. Among them, Jiangsu accounts for 7.2% of the total national debt. However, the debt liability ratio of these provinces is at a safe level. Measured by debt balance /gdp, the government debt ratios of Jiangsu and Guangdong are relatively low. However, the government debt ratio of Qinghai and Guizhou is as high as 60%, which is outside the 60% safety line. This reflects the unbalanced development of China. The eastern region has a large GDP but a low debt ratio, while the western region has a small debt scale but a high government debt ratio. The government debt ratio reflects the government's financial resources, and excessive debt ratio will hinder the sustainable development of local government economy.
2.3 the "transferability" of local government debt increases the instability of the bond market
China's local governments are closely related to the central government. The central government and local governments have a certain unity. They are interrelated and influence each other. For the sake of domestic economic stability and the continuous improvement of people's living standards, as a regulator, the central government will not allow local governments to "go bankrupt". This means that once the local government is unable to pay off the local debt, the central government will transfer the risk through a series of transfer mechanisms. When high-speed economic growth is no longer one of the conditions, "seigniorage" has become a means to solve this situation. However, the people's ability to bear the seigniorage is limited. Excessive currency issuance will not only cause turbulence in the bond industry and the financial industry, but also lead to the decline of domestic people's living standards, increase social instability and intensify social contradictions. Therefore, the debt transfer caused by over issuance of local government bonds will greatly increase the bond risk, and eventually lead to bond depreciation, that is, purchasing power risk.
2.4 insufficient bond liquidity
Compared with the bond market of developed countries, the liquidity of China's bond market is relatively poor. China's treasury bond trading is mainly based on the inter-bank bond market, and commercial banks play the role of major buyers. This trading mode will bring higher bond liquidity premium. The lack of liquidity in China's bond market will lead to a setback in the issuance cost of corporate bonds and the development of the corporate bond market. According to the data, the yield to maturity of China's corporate bonds was 2.249 percentage points higher than the Treasury bond yield on average from 2009 to 2016. This directly increases the financing cost of corporate bonds, affects the pricing of corporate bonds, and indirectly increases the risk of corporate default. At present, the research on the corporate bond market in China is still in its infancy. The corporate bond market is immature and has poor liquidity, which directly increases the risk of the bond market in China.
3. suggestions on reducing the risk of bond trading
3.1 improve reasonable supervision mechanism
From the perspective of incomplete law, the important means to solve the theory of incomplete law is to introduce a reasonable regulatory mechanism. However, the incompleteness of the law determines that the law enforcement organ of the court has the space for free ruling, This is reflected in "residual legislative power" and "discretion" "However, the law enforcement mechanism of the court is passive, lagging behind and passive. Only after the prosecution can we enter the normal law enforcement procedures. In this case, the risk often has produced or even caused irreparable harm. Therefore, it is particularly critical to improve the law enforcement of the regulatory agencies. Unlike the law enforcement of the court, the law enforcement of the regulatory agencies is positive and active, and can often be carried out in advance or at the time of the harm To reduce or stop the occurrence of hazards. This can greatly reduce the risk caused by the incompleteness of the law. It can make the risk into a controllable range and reduce the risk factors of securities investment.
3.2 promote balanced development of local bond industry and economic transformation
The high debt ratio of government bonds in some regions of China, the large pension burden, and the current tax reduction policy to maintain economic growth during China's economic downturn have led to the increase in the issuance of local government bonds. The root of this problem lies in the poor development of local economy, the lack of stable economic growth points and the slow industrial transformation. In order to solve the adverse impact of local government debt ratio on the overall bond industry, local governments are required to uphold the "scientific concept of development" and promote sustainable development. On the one hand, it requires the state to support from the outside and use the effective transfer payment system to promote the economic development of the West. On the other hand, local governments are required to find their own unique economic advantages, cultivate local characteristic industries, make full use of local unique advantages, find the internal driving force of economic development, improve GDP, and improve the efficiency of local financing and fund use. From this basic point, local governments should strengthen local economic construction, reduce the debt ratio and gradually reduce the risk of local government bonds.
3.3 supervision and regulation of local debts by the central government
Due to the superiority of the system of socialism with Chinese characteristics, the central government has considerable power and ability to supervise and regulate the debts of local governments. The basic principle of central control should be to formulate a certain amount of debt issuance according to local conditions, allow local governments to issue bonds freely within their repayment capacity, and avoid the risk of local debt default under normal circumstances. This control should be a relative control. Due to the imbalance of economic development in China, the bond issuance limit should be specified according to the local economic development level. This should be a reasonable and rational quota line, which will not hinder local economic growth, but also effectively prevent bond investment and transaction risks. This is beneficial to the healthy development of the bond market.
3.4 insist on developing the secondary market dominated by OTC transactions
With the continuous development of the financial market, corporate bonds will occupy a more and more important position in the bond market. While perfecting the regulatory system, developing the free trade model and learning from the bilateral quotation system of the United States can effectively increase the liquidity of the market and reduce the liquidity cost of corporate financing. On the premise of risk control, we will relax the access standards for investors and improve the trading activity and enthusiasm of investors. Let individuals participate more in bond investment, which will inject new vitality and fresh blood into the bond market.
epilogue
Bond investment will play a more and more important role in China's financial system. There is still a long way to go to improve China's bond industry, but the multi-level and high liquidity market is the inevitable trend of the development of China's bond market. With the steady progress of China's economy, the development of the bond industry will be more and more perfect. Although there are risks when there is income, visualization of the controllability of risks in China's bond market is bound to become the mainstream.