How to choose and buy bonds

Main item: Bonds

How to choose bonds

Income

Bond income usually consists of two sources - coupon income and income from the difference between the purchase price and the repayment or sale price. The bond is repaid at the end of the term at par, which is usually 1000 rubles. On the exchange, bonds are traded at a market price that can be either above or below par. For example, a bond is traded below par at a price of 990 rubles. The difference between the purchase price and the repayment price - 10 rubles form additional income. If a bond trades above par, most likely the main source of income is coupon income.

Coupon income

A coupon is an analogue of interest on a bank deposit. These are cash payments that the issuer pays on the bond. It can be expressed both in rubles and as a percentage of the face value. KD can be paid once a year, once every six months or once a quarter. For example, coupon income of 40 rubles is paid once a half year. For the year, the CD will be 80 rubles, or 8% of the face value. There can be several types of CD.

There are bonds that have a fixed coupon yield - it is known throughout the term of the bond and does not change. There is a variable - it is usually tied to the rate of the interbank market RUONIA, which can change over time. Therefore, only the nearest coupon is known, and the next one is calculated later depending on the RUONIA rate for the last 6 months. There is also a fixed coupon income - it also changes over time, but the size of all coupons is known in advance.

Profitability

Distinguish the yield of a bond to face value (coupon) and to maturity. If you are going to hold a bond until maturity, then when choosing, you need to look specifically at the yield to maturity. It may differ from coupon yields and varies depending on the market price of the bond. For example: coupon yield of a bond to the face value of 1000 rubles 9%. If the market price of the bond decreases from 1000 to 950 rubles, then the yield will rise to 9.47%. That is, when the market price of a bond decreases, its yield rises. But if the yield on some bond is much higher than the market average, this suggests an increased risk.

Remember that the yield on repayment is expressed in percent per annum. For example, the yield to maturity is 12%, and there is only 1 month left until maturity, which means that the actual yield will be about 1%. So pay attention to the maturity of the bond. How to calculate bond yields can be found in this article.

Maturity date

Maturity date - the date when the bond will be redeemed, that is, its face value is paid. Choose a date based on your investment time.

It is recommended to buy bonds immediately after the coupon payment so as not to pay the accumulated coupon income (NCD).

If the repayment of the bond is not yet soon, for example, before it is 2-3 years old, then the price of the bond can go back and forth for a long time around your purchase price and will begin to approach par only closer to the maturity date. If you plan to sell the bond before maturity, try to choose bonds with a large coupon size, since the NKD that will be paid to you on sale is determined by the size of the coupon.

Reliability

The biggest risk of bonds is the risk of default. Therefore, it is necessary to assess the reliability of bonds. The most reliable bonds are state OFZs issued by the Ministry of Finance, less reliable ones are municipal and sub-federal bonds issued by the regions, and even less are corporate bonds. Some bond issues are assigned a credit rating by which reliability can be judged.

In an amicable way, before buying corporate bonds, you need to assess the reliability of bonds, look at the issuer's financial statements, but now we will not focus on this. Usually all risks are already reflected in the market price, and the more they are, the greater the profitability. For example, at one time, bonds Mechel"," which were in a pre-bankruptcy state, traded at a yield of 30%, and some issues of 50% or more.

Liquidity

Liquidity - how easy it is to buy or sell a bond. On bonds with low liquidity, transactions are made very rarely - once every few days, and it may even be that at the moment no one sells or buys the desired bond, or the price is very different from the one you need. You can assess liquidity on sites where the course and volume of trading are published or directly in the trading terminal. The larger the volume of trading and the more often transactions are made, the more liquid the bond.

Taxes

President Vladimir Putin in December 2015, in his annual address to the Federal Assembly, asked the government to submit proposals for the development of the corporate bond market and to exempt from taxation, including personal income tax, coupon income on bonds.

On March 22, 2017, the State Duma of the Russian Federation adopted a law on the exemption of individuals and legal entities from paying personal income tax from coupon income received from circulating ruble bonds of Russian organizations, if these bonds were issued in 2017-2020.

The law was adopted under the name "On Amendments to Chapter 23 of the Second Part of the Tax Code of the Russian Federation."

Coupon income on such bonds is subject to personal income tax only if the amount of the coupon exceeds the amount of interest calculated based on the nominal value of the bonds and increased by 5% of the refinancing rate of the Bank of Russia, effective during the period for which the income was paid.

Income in the form of a discount, obtained upon repayment of bonds denominated in rubles and issued in 2017-2020. bonds of Russian organizations, are also exempted from paying personal income tax without restrictions on the amount.

"The proposed measures will ensure the equalization of the conditions for taxation of interest income of individuals from investments in deposits in banks and in circulating bonds of Russian organizations," the explanatory note to the document says.

The law comes into force 30 days after its official publication, but not earlier than the first day of the next tax period on personal income tax.

Another way to choose bonds is directly in the QUIK trading terminal. To do this, you need to configure the table of current parameters by adding the columns you need:

• title,
• face value
• demand price,
• offer price,
• due date,
• yield to maturity,
• NKD,
• coupon size.

You can filter the bonds by the maturity date you need and the yield to maturity. Next, look at the issuer's reliability and choose bonds that suit you in the ratio of profitability and reliability.

How to buy bonds

Bonds, like stocks, are traded on the Moscow Exchange. To buy bonds, you need to open an account with a broker. After that, you can install a sales terminal on your computer and get down to business.

Bonds are traded piece by piece. The face value of most bonds is 1000 rubles, and the market price runs around the face value. Bidding takes place in two modes: T + and T + 0. OFZs are traded in T + 1 mode, corporate, sub-federal and municipal bonds are traded in T + 0 mode. T + 2 Eurobonds. T + 0 means that the settlement of the transaction and the delivery of securities occurs on the day of the transaction. T + 1 and + 2 means that the settlement and delivery of securities takes place on the next day and the second day after the transaction.

The price of bonds on the exchange is expressed not in rubles, but as a percentage of the face value. For example, the price of a 98.5% bond is 985 rubles with a face value of 1000 rubles. It is important to note that when buying a bond, in addition to the market price, you still pay NKD - the accumulated coupon income is the coupon income that managed to accumulate by the day the transaction was made. NCD is expressed in rubles. If the bond price is 98.5%, and the NKD is 10 rubles, then the total purchase amount will be 995 rubles. If you sell the bond, then the seller will pay you the NKD.

For example, you want to buy a corporate bond with a yield of at least 12% per annum. Open the QUIK terminal, create a table of current parameters, add bonds and the necessary columns to it. Set up the Yield to maturity column to show only bonds with a yield of more than 12%. Sort the bonds by maturity date and get the following list of bonds:

If you want to invest money for six months, then Transaero B1 bonds and Russian Standard BO 02 will suit you (this is just an example, not a recommendation).

After you find a suitable bond, open a trading "glass." The glass displays the purchase requisitions for sale and purchase: price, volume and annual yield when buying a bond at this price.

You can buy a bond at the market price that the sellers are offering at the moment, or bid with your price, a little lower, in the hope that someone will agree to your price. In the application window, select the desired action - purchase or sale. In the Price field, you enter the desired price as a percentage of the face value. In the Quantity field, enter the number of bonds you want to buy. On the right, you will have the required amount for the purchase, taking into account the tax authorities.

After entering the price and quantity, it remains only to put an application in the glass and wait for the execution of the transaction. The process of buying bonds is similar to buying shares.

Remember that 3-7 days before the date of payment of the coupon or repayment, trading is frozen to compile a list of bondholders. During this period, it is impossible to buy or sell a bond, trading on it is not made - the bond is frozen^[1].

See also

• Bonds

Notes