Beginners

[NZSilver]

Can someone please give me a quick explanation on trading bonds. I understand that if OCR rise and the bond was paying a lower original IR then the bond will decrease in price so the yield increases towards what the market and vice versa fo OCR decreases.. obviously related to.more variables like risk ect of underlying bond.

My question is more around when you buy them say on direct broking why you trade with a selected rate vs an actual $value per bond? When you make a purchase say 6.5% x 5000 for example how many underlying bonds do you actually get? Or is it an actual value? What's comes through on your shareholder statement?

Thanks in advance and sorry for the rather basic questions

[Grimy]

Some bonds trade at a$ value, some at a % return rate.
While it is perhaps easier to work out the total bonds and price to pay is with a $ rate, as far as buying them it's the same - I roughly work out how many bonds are within my total $ range for the purchase and I bid for that number of bonds (that's all you can do anyway) and that's what you'll get. The variable is the total price you pay, which is shown before you hit the 'place order' button (the same as when buying shares). If the total price is higher than the funds I have for the purchase, then I amend the buy order to a number of bonds that has a total purchase price within my budget.
I hope that was what you are wanting to know.

[Nor]

Interesting point (snag) re investing in bonds. That is when you sell them you have to fill out IRD form IR3K. The second question is

"Print the total amount of interest you received during the
time you held this investment in Box 2. Include any interest
received in the year of sale or maturity."

Now if you have held something like WKSHA from the start about 16 years ago, paying a variable amount every year you are in for a lot of tedious searching. And quite pointless too because question 5 then asks you to

"Print the total amount of interest you have included in
previous tax returns in Box 5."

And question 7 then essentially asks you to subtract Q5 from Q2 leaving the interest received in the current year!

[Grimy]

That's interesting/confusing, as IRD get their figures on interest and tax paid each year on bonds - now directly from the payer and previously in our paper returns. So don't know how any of that is relevant. I thought the only time you had to provide them with any further information on your bondholding was if you had purchased at below face value and sold above that figure - i.e. tell them your capital gain (or loss).
I normally buy at issue and keep the bond through to maturity, so capital gain isn't an issue.

[Nor]

That info would be caught by the IR3K too.

[Nor]

Thinking some more it gets even weirder. The figure at Q7 of this form has to be included in Other Income in one's IR3 tax return - it includes interest earned in current year - which IRD will already have recorded in one's dividends or interest received.

[Grimy]

"Now if you have held something like WKSHA from the start about 16 years ago, paying a variable amount every year you are in for a lot of tedious searching."

Especially as (IIRC) you only have to keep records for 7 years.......

[Nor]

Good point.

[Nor]

Thinking some more it gets even weirder. The figure at Q7 of this form has to be included in Other Income in one's IR3 tax return - it includes interest earned in current year - which IRD will already have recorded in one's dividends or interest received.

So double taxed, unless you alter the IRD figures, and then you have to provide documentation justifying changing them.

[Snoopy]

Interesting point (snag) re investing in bonds. That is when you sell them you have to fill out IRD form IR3K. The second question is

"Print the total amount of interest you received during the
time you held this investment in Box 2. Include any interest
received in the year of sale or maturity."

Now if you have held something like WKSHA from the start about 16 years ago, paying a variable amount every year you are in for a lot of tedious searching. And quite pointless too because question 5 then asks you to

"Print the total amount of interest you have included in
previous tax returns in Box 5."

And question 7 then essentially asks you to subtract Q5 from Q2 leaving the interest received in the current year!

The question might be pointless if you held a bond from issue to maturity - yes. But the question might be important if you did not buy a bond at issue and subsequently sold it, or held it to maturity. As bonds are regarded as a 'scheme of arrangement' by the IRD, and net proceeds, including capital gains, are taxable, the total interest earned previously may decrease your capital gain tax liability once you exit the bond. Capital gain in a scheme of arrangement includes any associated interest payments.

The capital tax liability of bonds does not depend on whether you are an 'bond investor' or 'bond trader'.

SNOOPY