In 1960s (1950, 1960), the main issuers of high-yield bonds in the United States were small and medium-sized companies, with the purpose of raising funds and developing business. These companies have weak capital strength and low credit rating, and the bonds issued must have a high yield to attract investors. During this period, the issuance scale of such bonds was also very small. The large-scale rise of high-yield bonds in the United States was in the 1980 s, which was closely related to the liberal economic policy implemented by President Reagan after he took office. Under the influence of a series of external shocks, such as the Vietnam War and the oil crisis, the United States entered a recession stage in the1970s, and there was a "stagflation" situation at home. After 20 years of post-war prosperity, American people and enterprises are facing great pressure to survive. Enterprises began to reduce investment on a large scale, and the value of fixed assets and stocks plummeted, further undermining the confidence of the banking industry. Banks began to tighten credit and only granted loans to large enterprises with high credit ratings, which made the financing of small and medium-sized enterprises worse. In order to stimulate economic growth, after President Reagan took office, he implemented liberal economic policies, carried out financial reforms, relaxed interest rate controls, lowered tax rates and reduced debt taxes, which directly stimulated and promoted the development of the corporate bond market. Because paying interest on debt can reduce taxes, but dividends can't, which greatly encourages enterprises to increase the proportion of liabilities in the capital structure.
At the same time, 1970 and 1980 coincided with the industrial adjustment and reorganization of major industrialized countries in the west. With the technological progress, traditional industries gradually lost their vitality, and emerging industries rose rapidly, which triggered a wave of mergers and acquisitions. Enterprises need a lot of money in the process of development or merger, but because of the high risk, the bank loans they can get are very limited, and they can only rely on issuing high-yield bonds for financing, so the high-yield bond market can develop rapidly.
When leveraged buyout has become the main use of high-yield bonds, junk bonds are more suitable. In M&A, the acquirer acquires the enterprise through debt financing far greater than the equity. With the cooperation of junk bonds, the debt ratio in leveraged buyout can be several times, ten times or even dozens of times that of equity. In order to complete the acquisition, expand the issuance of bonds, and constantly raise the interest rate of bonds, even regardless of the real huge risks in the acquisition operation. At the same time, speculators are almost crazy about speculation, which makes the high-yield bond market expand rapidly, and many poor-quality enterprises also join in, which leads to the continuous decline of the credit rating of bonds and the evolution of high-yield bonds into "junk bonds". In the development of American high-yield bonds, we can't help but mention an important person, that is, Mike, who is known as the king of junk bonds. Milken. Through a detailed study of historical data, he found that a diversified long-term low-grade bond portfolio will not only bring higher returns, but also be less risky than a comparable blue-chip portfolio.
Another important reason why high-yield bonds can develop rapidly is that they have great flexibility in design, creation and trading. Compared with stocks, bonds can be created and traded at any time according to investors' needs, which greatly enriches investors' choices and expands the scale of the capital market.
Although the gray and irrational aspects of the development of high-yield bonds cannot be ignored, we must affirm its great contribution to the American economy in the1980s. On the one hand, it greatly promoted the financing and innovation activities of small and medium-sized enterprises. During this period, a large number of small and medium-sized enterprises have been able to enter the mainstream market through high-yield bond financing, and many emerging enterprises and industries have been supported by medium and long-term capital with high-yield bonds as the main body. On the other hand, it stimulates enterprise reorganization activities and improves the operational efficiency and corporate governance level of the whole economy. Municipal bonds are usually divided into two categories: general liability bonds and income bonds.
General liability bonds have nothing to do with specific projects, and their principal and interest are guaranteed by the government's reputation and taxes. In fact, they are local bonds. Income bonds are related to specific projects, and their principal and interest are derived from the income of investment projects, such as tap water, subway and airport charges. For investors, the risk is higher than that of general liability bonds.
The issuers, uses and investment projects of municipal revenue bonds are all specific, so they have the following characteristics:
The issuer must be an institution authorized by the local government (such as a municipal construction company);
The raised funds are used for the construction of public facilities, not for the payment of wages, to make up for the lack of administrative funds and social security funds;
(3) Debt repayment funds come from the project's own income (it is not excluded that the government will give some subsidies);
Enjoy special preferential treatment, generally exempt from or reduce interest tax;
⑤ Adopt a market-oriented operation mode.
Perfect municipal revenue bond market
Municipal income bonds, together with government bonds, corporate bonds, stocks and investment funds, have built a complete and unified securities market. Municipal bonds have become an important way for local governments in these countries to raise funds and play a very important role in local infrastructure construction. Among them, the United States is the country with the most developed municipal bonds in the world. American municipal bonds began in 19 in the 1920s, and developed rapidly after World War II. In recent years, the United States has issued about $300 billion of municipal bonds every year. In 1998, the total amount of municipal bonds in circulation reached $10.5 trillion, accounting for more than 10% of the total amount of various bonds in circulation. Among them, municipal income bonds have developed rapidly since the 1970s, accounting for more than 50% of all municipal bonds. According to the American tax reform act of 1986, the interest income of such municipal bonds is exempt from federal income tax, so it is attractive to investors.
Although Article 28 of the Budget Law of the People's Republic of China, which came into effect on 1995, clearly stipulates: "Local budgets at all levels shall be prepared according to the principle of living within the limits of revenues and balancing revenues and expenditures, and no deficit shall be listed. Unless otherwise provided by law and the State Council, local governments may not issue local government bonds ". This provision makes local governments have no right to issue local bonds, but the issuance of municipal income bonds through government-specific market institutions (such as municipal construction companies) is not prohibited, but has actually existed widely and is expanding.
For example,1February 1999, Shanghai Urban Construction Investment and Development Corporation issued 500 million yuan of Pudong Construction Bond to raise funds for the first phase of Shanghai Metro Line 2. 1In April, 1999, Jinan Water Supply Company issued10.50 billion yuan water supply construction bonds to raise funds for urban water supply reservoir projects; 1In July 1999, Changsha Ring Road Construction and Development Co., Ltd. issued a bond of10.8 billion yuan to raise funds for the construction of the Second Ring Road project in Changsha; 1999165438+10. In October, Shanghai Jiushi Company and Shanghai Urban Construction Investment and Development Corporation issued corporate bonds of 600 million yuan and 800 million yuan respectively, and all the funds raised were invested in Shanghai's municipal infrastructure construction.
These bonds are approved and issued in the form of corporate bonds. Rather than evading the constraints of the budget law, it is better to say that municipal income bonds actually exist and the corresponding legal norms lag behind, so we have to borrow the form of "corporate bonds". In fact, the municipal revenue bond of a specific project is a bond between local government bonds and corporate bonds. They should not simply belong to local government bonds or corporate bonds, but should have their own independent forms of existence. Don't prescribe the wrong prescription because of some inherent conceptual framework. According to the principle of "emphasizing substance over form", it is not necessary to stick to the concepts in some books to tailor the existence of reality. It is not that local governments issue bonds in disguise to avoid legal constraints, but that there is no corresponding regulation on municipal income bonds in law, which brings a lot of contingent liabilities to local governments and increases financial risks. Therefore, the breakthrough point of our discussion is not whether to amend the provisions of the budget law prohibiting local governments from issuing bonds, but to legislate as soon as possible to stipulate municipal income bonds that are neither local public bonds nor corporate bonds, and to provide operational legal norms.
Tax factors of bond income
On the surface, investment in policy-oriented financial bonds can obtain a relatively higher rate of return than national debt. However, considering the tax factors after deducting the cost of capital, there is little difference between the two. In addition, the maturity and coupon rate of the bond also have an impact on its final income.
Table 1
Parity yield and spread of national debt and gold bond
Average of 20 trading days
Duration1235711520
Gold debt1.51%1.85% 2.23% 2.82% 3.14% 3.38% 3.69% 3.86%
Treasury bonds1.35%1.59%1.93% 2.53% 2.85% 3.10% 3.37% 3.51%.
Spread 0.16% 0.26% 0.29% 0.30% 0.29% 0.28% 0.33% 0.36%
There is not much advantage in considering financial bonds simply from the perspective of taxation.
According to our calculation, except for 1 year, the one-month parity yield of government bonds and policy financial bonds in the interbank market is about 30BP. Policy financial bonds are quasi-state credit bonds. Compared with national debt, the credit risk premium is not large. This 30BP spread is mainly caused by the different tax policies of interest income of national debt and policy financial debt. According to the relevant regulations of the Ministry of Finance of People's Republic of China (PRC) and State Taxation Administration of The People's Republic of China, the interest income obtained by enterprises investing in government bonds is exempt from income tax. The question is, is this 30BP spread enough to offset the income tax difference?
Assuming that investors bear the income tax rate of 33%, regardless of the investment cost, for parity bonds, policy financial bonds have relative investment value only when the national debt coupon rate is not higher than 67% of policy financial bonds.
Table 2 When the cost of capital is not considered
The spread between national debt and policy financial debt
Duration1235711520
After financial debt tax1.01%1.24%1.49%1.89% 2.10% 2.26% 2.48% 2.59%
Treasury bonds1.35%1.59%1.93% 2.53% 2.85% 3.10% 3.37% 3.51%.
After-tax spread-0.34%-0.35%-0.44%-0.64%-0.75%-0.83%-0.89%-0.92%
Judging from the after-tax spreads in the above table, the yield of policy financial bonds is much lower than that of national debt, and the longer the term, the greater the gap. Therefore, regardless of the cost of capital, the investment value of national debt is far greater than that of policy financial debt.
The cost of capital has a great influence on bond returns. In most cases, we need to consider the cost of capital. Assuming that the cost of capital is 1.5%, the after-tax rate of return is as follows:
Table 3 The spread between national debt and policy financial debt
Duration1235711520
After tax on gold debt1.50%1.74%1.99% 2.39% 2.60% 2.76% 2.97% 3.08%.
Treasury bonds1.35%1.59%1.93% 2.53% 2.85% 3.10% 3.37% 3.51%.
The after-tax spread is 0.16% 0.14% 0.05%-0.14%-0.25%-0.34%-0.40%-0.43%.
At this time, the after-tax yield of policy financial bonds with a maturity of less than 4 years is higher than that of national debt, but it is still low for those with a maturity of more than 4 years. In fact, different institutions have different capital costs and investment maturity preferences: commercial banks have low capital costs and mainly hold short-term bonds, while insurance companies have relatively high capital costs and prefer to hold long-term bonds, so we compare different maturities with different capital costs. Assuming that the cost of capital is 1.2% in the period below 4 years, 2. 1% in the period from 4 to 8 years, and 2.7% in the period above 9 years, then:
Table 4 Considerations
Cost of capital and remaining term
After the spread between national debt and financial debt.
Duration1235711520
After tax, the gold debt is1.41.64%1.89% 2.58% 2.79% 3.15% 3.37% 3.48%.
Treasury bonds1.35%1.59%1.93% 2.53% 2.85% 3.10% 3.37% 3.51%.
After-tax spread 0.06% 0.04%-0.04% 0.06%-0.05% 0.06% 0.00%-0.03%
At this time, the after-tax income of policy financial bonds and national debt is basically the same. It can be seen that for different investors, the investment value judgment of policy financial bonds and national debt needs to be analyzed in combination with factors such as tax rate, capital cost and investment period.
Coupon rate is also an important factor affecting bond yields. As far as national debt is concerned, the higher the coupon rate of bonds, the greater the tax exemption effect. Therefore, the difference of bond coupon rate will also lead to the difference of after-tax investment yield. In actual investment, besides tax rate, capital cost and investment period, different bond coupon rate and the resulting premium/discount factors need to be considered. Compare 02 national debt 06 and 04 national debt 03. The remaining maturities of these two bonds are similar, but according to the latest transaction price, the yield to maturity of 02 national debt 06 is higher than that of 04 national debt 03:
Table 502 Basic Elements of National Debt 06 and 04 National Debt 03
Refers to the trading price of yield to maturity on the trading date of the remaining years in coupon rate.
04 national debt 03 4.42% 3.512005-10-17107.97 2.04%
02 Treasury bonds 06 2.00% 3.64 2005-10-/7 99.50 2.17%
This does not mean that the investment value of 02 national debt 06 is higher than that of 04 national debt 03, because the coupon rate of 02 national debt 06 is lower than that of 04 national debt 03. The different influences of coupon rate are manifested in two aspects: the tax exemption effect of par value and the tax reduction effect of premium amortization.
Assuming that investors make profits in other investment projects and buy these two bonds respectively and hold them until maturity, because 04 national debt 03 is bought at a premium, it can partially offset the income tax payable by other profits during the holding period; However, 02 Treasury bonds are bought at a discount, and capital gains income tax needs to be paid during the holding period. The difference between these two items is 2.80 yuan (7.97 plus 0.5 times 0.33), which is equivalent to about 0.78 yuan per year. Therefore, the after-tax yield of 02 national debt 06 is about 60BP lower than that of 04 national debt 03. So the investment value of 04 national debt 03 is higher than that of 02 national debt 06.
In order to accurately compare the investment value of government bonds with policy financial bonds and different coupon rate government bonds, it is necessary to get the after-tax yield curve of government bonds and policy financial bonds, and then get the theoretical price according to the after-tax discounted cash flow method. In Table 6, we have listed several bonds whose pre-tax and after-tax prices are quite different theoretically (assuming the tax rate is 33% and the capital cost is 1.22%). In addition, regardless of your company's income, you should have your own income from the signed contract.