Bonds in Conversation : The Rising Tide Lifts All Boats

I must admit it has been a bewildering week and I have been quite buffeted around in the noise and confusion that accompanies the insanity of a wild and trampling herd.  Needless to say, I have had a successful week, feeling like I have been trading off the stupidity of melamine fed panda scions which is, of course, a wild and fabricated untruth.

The mind numbing or rather, dumbing, forex market incapacitated me to a severe degree and it was kind of my dear friends to point out certain SGD corporate bond developments that had slipped my notice.

First, we have Genting coming back hard. Yes, Genting was lifted above 100 (specifically at 100.10) for the first time in months (end price to client unknown), clearly on retail demand and the strength of the SGDMYR. Yes, and the Malaysian election is looming ahead for Singapore to remain a nice little safe haven for Malaysians.

Second, our market has successfully lived up to its un-savvy investor title.


9 OCT First Non-Bank Debt Sale in Singapore Lowers Cost: India Credit

10 OCT Indian Refiners Fall After Govt. Gives Revenue Loss Estimate
…..Indian Oil Ltd. fell as much as 1.1% to 255.8 rupees

Oddly, UOB bank did bring up a USD sub debt this week at a much tighter price than onshore demonstrating perhaps familiarity breeds contempt ?

Their USD500 million 2.875% issue was over 3 times oversubscribed and came out at a spread of Libor+210 bp which works out to be about SGD 2.75%, assuming the bond would be called in 5 years time. This makes the 3% offered yield of the UOB SGD 3.15% paper look cheap. Given that the leverage given to UOB is about 80% (much better than buying property), we are looking at potential returns of 9-10% on capital.

The reason why retail clients haven’t bought the idea ? Because they much prefer Genting ?

An interesting piece of research I came across was the UBS publication Asian Bonds : Search For Yields Within Limits. (Drop me a mail if you would like a copy, although I am not sure if I am legally permitted to resend it)

I read the piece with a huge pinch of salt, as usual, whilst not disagreeing with their main point that it is necessary now that “credit fundamentals are not expected to improve materially”. Yet they urge investors to switch in to SGD corporate bonds which, to the skeptic like me, means 2 things. They are long to their necks because SGD bonds are much more illiquid than USD papers and acting to switch is a big leap of faith; secondly, they expect the market here to be numb or dumb to global credit developments should a fall out occur, that SGD papers would be immune to credit contagion.

In any case, I am tired of being the doom and gloom prophet. I screamed foul for 2 years before Bear Sterns and then Lehman collapsed. It was a good feeling, I must admit.