The bond shelf has three things worth knowing for ordinary mainland investors: treasury bonds (the safest asset), government bond reverse repo (the cash-management magic tool inside a brokerage account), and convertible bonds (a hybrid instrument unique to the mainland market). Their risk runs from near zero all the way up to near-stock levels. Let’s dissect them one by one.
Treasury bonds: assets backed by sovereign credit
Savings treasury bonds are bonds the Ministry of Finance sells directly to individuals, in certificate and electronic forms, with 3-year or 5-year terms. The rate beats same-term bank deposits, with interest paid annually or at maturity. Starting at ¥100, they’re bought at the counters or mobile apps of underwriting banks — issued on the 10th of each month, popular tranches get snapped up, usually selling out by mid-morning. Early redemption is allowed, but interest is deducted in tiers based on holding time, so they suit “money you definitely won’t need within three years.”
Book-entry treasury bonds trade on the exchanges and the interbank market, with prices fluctuating at market. You can hold to maturity and collect the coupon, or sell midway — when interest rates fall, bond prices rise, and you may earn the price difference on top. Individuals can buy them right in a brokerage app (codes starting with 01/02), with a threshold of around ¥1,000 face value.
The role of treasury bonds: the risk-free anchor of a portfolio. They don’t chase returns; they chase “one piece of the portfolio that definitely won’t blow up, no matter when.”
Government bond reverse repo: lend out your idle cash, take treasury bonds as collateral
The logic of reverse repo: some institution in the market is short on cash and willing to borrow from you against the treasury bonds in its hands, with the exchange guaranteeing the deal in the middle. You lend the funds; principal and interest are returned automatically at maturity; the risk is roughly that of the treasury bonds themselves.
Practical points:
- Don’t get the direction backwards: you are the one lending money, and in the brokerage app you tap “sell” on the corresponding instrument (an interface design that has confused countless beginners).
- Varieties: by term — 1-day (GC001 / R-001), 2-day, 7-day, 14-day… The Shanghai exchange requires ¥100,000 minimum (codes starting with 204); Shenzhen starts at ¥1,000 (codes starting with 131).
- Interest calculation: interest accrues by the actual number of days the funds are occupied. This produces a famous pattern — a 1-day reverse repo done on Thursday earns 3 days of interest (funds become usable Friday and withdrawable next Monday, so the occupation spans the weekend); done on the second-to-last trading day before a holiday, you collect interest for the entire break. At quarter-end and year-end, when the market is short of cash, the annualized rate can spike above 5% in an instant.
- Normally the rate is about the same as a money market fund. Its real use is: idle cash sitting in your brokerage account waiting for an opportunity — do a reverse repo before the close, better than letting it lie there.
Convertible bonds: a hybrid of bond and stock
A convertible bond is a bond issued by a listed company that can be converted into stock at an agreed price. It has two faces:
- The bond side: face value ¥100, principal and interest repaid at maturity (the interest is very low, token-level). As long as the company doesn’t default or get delisted, buying near ¥100 has limited long-term downside — the so-called “floor below.”
- The equity side: when the underlying stock rises, the convertible bond rises with it, theoretically uncapped.
This “floored below, unlimited above” structure is an institutional gift the mainland market hands to retail investors. Two trading rules make it even more interesting:
- T+0: buy and sell the same day. In the T+1 world of A-shares, this is one of the few instruments where you can correct a mistake intraday.
- Price limits: on the listing day, up to +57.3% or down to -43.3%; from the next day onward, ±20%.
Opening threshold: ¥100,000 in assets + 24 months of securities-trading experience (the June 2022 rule, applying to investors who open the permission after that date). Can you still participate in new convertible bond subscription without the permission? No — since the new rule, subscribing also requires the permission. This is the truest footnote to the threshold table in the series map: the good stuff all takes two years to unlock.
New convertible bond subscription (打新): credit-based subscription with no market-cap requirement; you pay only if you win the allotment, ¥1,000 per lot. Historically the rate of breaking issue price was low and average first-day returns were decent — it was once the closest thing in mainland China to a “free lottery ticket.” Participation has since exploded, per-lot profit has been diluted to tens or a couple hundred yuan, and breakages happen occasionally — but the cost remains near zero.
The risk clause you must understand — forced redemption (强赎): when the underlying stock stays above 130% of the conversion price for a set number of days, the issuer has the right to forcibly call the bond at a price of just over ¥100. If the convertible bond you’re holding has risen to ¥180 and you neither sold nor converted, a forced redemption makes you lose over 40% instantly. This is not a theoretical risk — every year a batch of investors gets caught. If you hold high-priced convertible bonds, you must watch the forced-redemption announcements.
A classic strategy has also grown up around convertible bonds — the “double-low” strategy: rank bonds simultaneously by “low price + low conversion premium rate,” buy a basket of top-ranked bonds, and rotate. It’s one of the hands-on chapters of the quantitative series that follows; for now, just remember the entry point.
The personality of the bond shelf
- Treasury bonds and reverse repos: almost risk-free; their yield is the floor of your opportunity cost.
- Convertible bonds in the ¥100–130 range: the sweet spot of offense and defense, and the hunting ground of the double-low strategy.
- Convertible bonds above ¥150: the bond-floor protection is gone, volatility chases the underlying stock — stop comforting yourself with “there’s a floor below.”
Who it suits
- Treasury bonds: people who want to ballast a portfolio, or park money that definitely won’t be needed for a fixed term.
- Reverse repo: everyone with a brokerage account — it’s not investing, it’s hygiene.
- Convertible bonds: people who meet the ¥100,000 + 24-month threshold and are willing to understand the forced-redemption clause. It is, bar none, the best value “advanced-level” instrument available to mainland individual investors.
Thresholds and clauses change with regulatory adjustments; key information such as forced redemption is subject to issuer announcements. This article does not constitute investment advice.