| dc.description.abstract | “As the oil price keeps staying at a high level and that of commodities continues to rise, the prices of domestic oil-related products still have an upward pressure. The inflationary risk goes up and the real interest rate remains low. Under the circumstance of solid economic growth, the monetary policy should return to a neutral position, which can stabilize the prices of commodities, facilitate the reasonable capital allocation, and stabilize the long-term finance. As a result, the board decided to raise the discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral by 12.5 basis points respectively.” is constantly repeated in the quarterly minutes of board meeting of the Central Bank of Republic of China from March 2006 to December 2007. All of these facts cause the YTM of 10 years keeping rising, which enlarge the unrealized loss for the government bond positions in the banks. The investment opportunities for banks are quite limited, and the government bond becomes one of the best targets because of its advantages of safety, liquidity, and profit-taking. Therefore, I would like to discuss which kind of investing strategy of government bond is the best for banks.
After the analysis in this dissertation, banks should have the buy-hold strategy but use the hedging one at the same time to optimize the profits and reduce the risks. The main concern for the buy-hold strategy is for the businesses related with the government bonds. Government bonds positions of banks are usually used to do the R/P business. When the YTM goes up, we cannot sell most of these government bonds because the bond market is very shallow in Taiwan. As a result, we can only use the hedging strategy to lower the losses. Overall, after considering the excess capital allocation in the banks, the government bonds’ being used as the liquid reserve requirement, and the businesses of R/P with branches clients, banks still need to have the buy-hold strategy but use the short-term positions of government bonds to do the R/P businesses. As a result, banks can achieve the goal of optimizing the profits and lowering the risks in the government bond investment. | en_US |