For the sake of comparison, here is an example of a company to understand the characteristics of bonds. For their own development, enterprises need external funds to support at a certain stage. Enterprises receive external funds mainly through three channels: bank loans, bond issuance, and stock issuance. The table below lists some of the differences between the three methods.
As a way of raising funds, once the bond is successfully issued, the bonds will generally enter the secondary market for public trading.
In actual economic activities, some bondholders need funds for short-term capital turnover, but they are not willing to give up the rights of bond holding. At this time, they can use the “repo” transaction to complete the short-term turnover of funds.
Repo is also known as a reverse repurchase agreement. As can be seen from the name, this trading behavior is characterized by the fact that when the financial product is sold, an agreement is agreed to buy back the financial product at a certain time. The figure below is a clear description.
When the financial product of the transaction is a government bond, it is called a reverse repo of the government bond. Since the government bond has a high credit, the reverse repurchase of the financial transaction market is often based on the reverse repurchase of government bond.
[Thinking] Does the form of investment in the reverse repurchase of government bond appear in your trading system?
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