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Mar 1, 2008

English Chinese translation sample-Book-entry T-Bond - Helpful Tips4

(Edited by freelance Chinese translator li – English to Chinese translation or Chinese to English translation services- financial translation)

19. What is non-trade transfer? How to apply for non-trade transfer service?
Non-trade transfer is the ownership transfer of bond due to Court detention, insolvency liquidation, and gift or estate inheritance.
  19. 什么是非交易过户?如何办理非交易过户业务?

Three situations of non-trade transfer:
(1) Arising from Court detention, insolvency liquidation.
Concerned Justice Department should fill in Bond Account Application Form at designated ICBC Business Office, produce judicial documents and the custody account to receive the transfer. Transfer will be made after approval from Business Department.

(2) Due to acceptance of a gift
Donor fill in Bond Account Application Form at designated ICBC Business Office, surrender Bond Trading Card, Bond Account Card and own valid ID document, custody account of the person to accept the gift. Transfer will be made after approval from Business Department.

(3) Owing to estate inheritance.
Applicant applies at designated ICBC Business Office Counter should surrender judicial document, Bond Trading Card, Bond Account Card,valid ID document of applicant, and custody account of the person to receive the inheritance. Transfer will be made after approval from Business Department.

20. How the rule of enquiry password at China Government Securities Depository Trust & Clearing Company is specified? What happen if the password is forgotten?
Enquiry password is the last 6 digits of ID No (Individual Investor) or Organizational Institution Code Card (Institutional investor). Zeroes are inserted in front if less than 6 digits.
  20. 在中央国债登记结算公司的查询密码是怎么规定的?如该密码遗忘了怎么办?

Should password be forgotten, investor can initialize the password (changed back to raw password) at the ICBC Business Office where this service is opened with own valid ID document.

21. What is the difference between Net Price and Full Price?
Net price is the bond price after deducting interest accrued by nominal yield of bond. Full price is net price plus accrued interest.
  21. 净价和全价有什么区别?

Book-entry bond is traded in net price, quoted and closed at the price excluding interest naturally grows. Trading price using net price does not include accrued interest. Formation and changes in the price can reflect more accurately T-Bond's intrinsic value, relationship of supply and demand and interest rate trend.

Funds used for trading bond uses full price to settle.
Full buy price = net buy price + accrued interest.
Full sell price = net sell price + accrued interest.
Accrued interest = coupon rate/365*number of accrued days *face value of bond (100).
In quotation system, accrued interest is accurate up to 19 decimal places, but quotes are displayed up to 2 decimal places.
Clearing with investors is at full price; settlement amount = (trading net price + accrued interest).

E.g.: 020006, using July 17 as example. Value date of bond is June 6, number of holding days is one month and 11 days, or 41 days. Interest for bond denominated in 100 Yuan is 100*2%/365*41=0.22 Yuan. If net sell price is 100 Yuan, then full sell price is 100.22 Yuan. Net price trades are listed in net price. Full price is used to calculate actual payment and receipt.

According to Rules, OTC bond is traded in net price in order to truly reflect the changes of bond value for investors to analyze movements. If value of bond does not change, full price will rise naturally as number of holding days increase, which will create a misconception that bond appreciates when consider solely full price. Only changes in net price can reflect changes in bond value. Net sell price of this bond is 100 Yuan since issue date till today, no value increased, yet the full price has been up to 100.22 Yuan.

22. How to choose the opportunity to buy or sell?
Under 3 situations:
(1) If net sell price of Bond does not change, there is no difference for investors when to buy. Full price increases as time goes by. It only indicates the increase of interest included on the bond. Investor has to increase payment according to full price. But the increased portion is returned to investor through the interest included in bond. Therefore, investor's cost will not rise if net price remained unchanged.
  22. 如何选择买卖时机?
  (1) 若债券卖出净价未发生变化,投资人任何时候买入债券都没有差别。全价随时间的增加而增加,只表明债券内含的利息在增加,投资人按全价支付的资金增加了,但增加的部分通过债券内含利息返还给投资人。因此,净价不变,投资人成本没有增加。

(2) Trading involves difference in prices. Buy and sell on the same day will definitely lose, since buy price is lower than sell price in Bank, but this means buy price is higher than sell price to investors. Investor will lose if the holding period is too short. Hence, one should calculate the minimum holding days so that the yield after subtracting buy/sell spread from the implied interest during the holding period is higher than the interest income from instant-saving deducted tax. For example: net buy price of Bond 020006 denominated in 100 Yuan is 99.95 Yuan, net sell price is 100.01 Yuan, spread is 0.06 Yuan, accrued interest is 0.22 Yuan, 100*2%/365* no. of days - 0.06≥100*0.72%/365*no. of days*(1-20%). The result is no less than 15 days. This means that investor who holds bond for more than 15 days will definitely have better return from current deposit. The longer the holding days, the better the yield will be.
  (2) 买卖有价差,当日买当日卖必然会亏本,因为银行的买入价低于卖出价,即相对于投资人而言,买价高于卖价,持有时间太短,投资人会亏本。因此,应计算一个不亏本的最短持有天数,即持有期间的内含利息减去买卖价差后的收益应高于存活期的税后利息收入。如,100元面值债券020006买入净价99.95元,卖出净价100.01元,价差为0.06元,应计利息0.22元,100*2%/365*天数-0.06≥100*0.72%/365*天数*(1-20%),计算结果,天数≥15天,这意味着投资人只要持有15天以上,肯定比存活期划算。时间越长,收益越多。

(3) Price of OTC bond is closely related to market changes. Sharp judgment will bring additional yield. Bond price is inversely proportional to market interest rate. Interest rate goes down will cause T-Bond price goes up, vice-versa. Investor can buy in bulk if he expects interest rate will decline. Hence, significant return will be gained to sell at a time when interest rate really falls to cause bond price soar. If investor forecasts interest rate will rise, he can sell the bond on hand to gain first. Later, he can buy when interest rate really rises to cause bond price down. Real yield of bond at this time will be higher than coupon rate.
  (3) 柜台债券价格与债券市场变化密切联系,若准确判断,可获得额外的升值收益。债券价格与市场利率成反比,利率降低,债券价格上升,利率上升,则债券价格下跌。若投资人预计利率将降低,可大量买入债券,待利率真正降低导致债券价格上涨时,卖出债券即可获得高于利息的可观收益。若预计利率将上升,投资人可卖出手中债券,先获利,待利率真正上升导致债券价格下跌时,再买入债券,这时的债券实际收益率高于票面利率。

23. What are the risks involved in OTC trades?
Main risk is interest rate risk. Loss can be incurred when changes in interest rate cause variation in bond price. When interest rate jump and T-Bond price down after investor buy Bond, sell Bond at this time will cause loss (buy at high and sell at low). If investor continues to hold Bond, no actual loss since he can earn fixed nominal interest.
  23. 柜台交易有何风险?

If investor holds the Bond shorter than the minimum, interest income will be less than that of current deposit.

24. What are the advantages of OTC bond over deposit?
Again taking 020006 with the lowest coupon rate for example, the coupon rate is only 2%, a rate lower than 5-year fixed deposit. Apparently this is not attractive. However, OTC bond has higher liquidity than fixed deposit. It may be a good move so long as it is not held till maturity.
  24. 柜台债券与存款比较有何优点?

Ex. 1: A fixed deposit of RMB 10,000 for 5 years, withdrawn a year later for emergency. Bank will only pay interest at current deposit rate. Actual interest income is 10000*0.72%*(1-20%)=57.6 Yuan. In the case of buying OTC bond and selling a year later, actual interest income is 10000*2%-0.06*10000/100=194 Yuan, 136.4 Yuan more than the former, or 3.4 times yield. Hence, as long as it is possible to withdraw in advance, it is very disadvantageous to deposit as fixed deposit.

Ex. 2: Interest rate of 1-year fixed deposit is 2.25%, 1.8% after deducting interest tax. Coupon rate of holding OTC bond for 1 year is 2%, but interest paid annually, higher than rollover 1-year fixed deposit.

Ex. 3: Assume in future interest rate will be driven down which mean bond price will eventually go up. Investor not only gets the nominal yield held to maturity, but also gains from bid-ask spread.

Ex. 4: Liquidity of OTC bond is similar to time-demand deposit. For a 3-year time-demand deposit withdrawn after 3 full months, accrued interest is 60% of 1.71% (3-month rate), real yield is 0000*1.71%*60%/12*3*(1-20%)=20.52 Yuan. Yield for holding OTC bond for 3 months will be 10000*2%/12*3-0.06*10000/100=44 Yuan, with 23.48 Yuan more, or 2.1 times.

Conclusion: Owing to the strong liquidity of OTC bond, it can be treated as a "Current Deposit" with yield higher than fixed deposit instead of a 7-year bond. Investor can use a majority of idle daily expense to buy OTC bond without affecting the use of cash anytime, yet with handsome return.  

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