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How to purchase bonds on the OTC market

1.What are the investing methods on bonds?

2.Do I need to sign a contract before I trade bonds through brokers?

3.How many bond trading types are there now?

4.If I want to invest in bonds, what are the factors to affect bond price?

Q1.What are the investing methods on bonds?

Ans︰

(1) Participate in market auction and subscription:
Investors may entrust government bond dealers to auction or to subscribe limit amount through postal office (under one million NT dollars). Investors may subscribe corp. bonds and financial bonds by joining issuers private placement or security underwriter competitive bidding or book building.

(2) Trade directly from market:
Investors may purchase bonds from bond dealers, subscribe from executed underwriters or advisors, or invest
through RP/RS by OTC brokers.

Q2.Do I need to sign a contract before I trade bonds through brokers?

Ans︰
If investors want to invest Repurchase Agreement (Repo) and Reverse Repo, then they need to sign Repo Master Agreement and prepare personal stamp and ID to complete all the account opening procedures. If investors are interested in OS/RS trading, they also need to sign Risk Disclosure.

Q3.How many bond trading types are there now?

Ans︰
There are mainly two types of bond trading, one is outright purchase/outright sell (OR/OS) trading and the other one is repurchase agreement/reverse repurchase agreement (RP/RS) trading. The former belongs to long-term investmentand the latter could be treated as short-term credit expanding and has the effect of margin loan.

(1) OP/OS:
The ownership of bonds will be permanently transferred after delivery. Coupon interest (calculated by coupon rate) will belong to buyers from the delivery day. Since most coupon payment are semi-annual or annual, if delivery day falls between two interest payment date, then the interest from last payment day to delivery day (accrued interest) will be paid with principal to the seller.

(2) RP/RS:
Sellers sell bond to buyers temperately at an agreed amount, period and interest rate (fluctuate with market rate) and buy it back at an agreed date. Sellers are obligated to buy back the bond and pay the agreed interest to the buyers. Buyers' profit is the interest paid by agreedrate and period.

Q4.If I want to invest in bonds, what are the factors to affect bond price?

Ans︰
(1) Economic and financial factors:
Supply and demand of market capital, Central Bank's currency policies (reflected by interbank offered rate, short-term borrowing market and short-term interest rate of currency market), CPI (reflect by currency supply and demand, bank long-term interest rate benchmark), cycle or international financial condition.

(2) Internal market factors:
Supply and demand of bond trading, market liquidity, credit rating of issuers, operations and attitudes of market participants.