Is the impact of interest rate cuts on the debt base good or bad?
The impact of the central bank's interest rate cut on the debt base is mixed, because different time periods will produce different results. Under normal circumstances, the central bank's interest rate cut is beneficial to bond funds in the short term. In the long run, the central bank's interest rate cut is harmful to bond funds.
As we all know, as a bond fund, its investment scope includes various bonds, such as government bonds, financial bonds, corporate bonds and so on. However, general bond funds invest more than 80% of their funds in bonds, so the income of bond funds is mainly related to the income generated by the bonds invested, including bond prices and bond interest.
1 bond interest.
After the central bank cuts interest rates, the bond interest rate will probably fall. As we all know, the central bank's interest rate cut means that banks borrow less interest from the central bank. At this time, if banks want to raise funds by issuing financial bonds, they are likely to lower the interest rate of issuing bonds, otherwise they might as well borrow money from the central bank at a lower interest rate. At this time, if bond funds want to invest in these financial bonds, the interest income may be reduced.
2 bond price.
Under normal circumstances, as long as it is not a newly issued bond fund, it has already bought a lot of bonds when the central bank cut interest rates. Moreover, the interest rates of these bonds are already relatively high, so after the central bank cuts interest rates, the interest rates of these bonds may be higher than those of similar bonds newly issued after the interest rate cut, thus making these bonds more attractive and increasing the number of investors to buy. When more people buy, the price of bonds will rise more easily.
Therefore, from the perspective of bond interest, interest rate cuts are unfavorable to the debt base, while from the perspective of bond prices, interest rate cuts are beneficial to the debt base. However, the rise in bond prices caused by interest rate cuts often does not last long. When the interest rates of old bonds and new bonds tend to be consistent, the price of old bonds will naturally not rise again, so it is beneficial to cut interest rates in the short term. In the long run, the income of bond funds mainly depends on bond interest, so it is not appropriate to cut interest rates for a long time.