Inflation linked bonds ? How about a perpetual instead ?
A credible source informed me that inflation linked bonds (aka “linkers”) will not be a public feature anytime soon.
By punishing the savers, the government has better ways to “reward/aid the “poor” via each year’s budgetary handouts. So that leaves the general public in limbo especially when interest rates are at record lows and our inflation is still the second highest in SE Asia (after Vietnam) until Myanmar start publishing their numbers. And our interest rates will remain low because our government relies on uncovered interest rate parity to remove the effects of the strong SGD policy and interest rates should be negative at the rate we are going (Obama just won the US elections).
Well, it looks like they addressed inflation concerns by issuing alot of corporate bonds this year for the public to buy. Some of the coupons are even higher than the CPI rate. Wow !! Be thankful !!
For the record. Inflation linked bonds issued by the government IS NOT EQUAL to perpetual debt issued by gaming or shipping companies !
I dug out every single subordinated paper I could find in Singapore Dollar and voila ! Over 40% of all these subordinated (higher risk) papers were issued THIS YEAR !
Disclaimer : Prices and yields are just indicative and for illustration purposes.
The market has done well to prey on the fears of the public to issue a whole lot of papers that could possibly NOT MATCH the NEEDS OF INVESTORS whose primary concern is with the rising cost of living.
Why buy Olam Perpetual just because its coupon is 7% and the latest Sep inflation number is 4.7% y.o.y. ?
I have doubts on the extent of public awareness but I am sure that surely someone must be aware that they are buying OCBC 5.1% at a negative yield (unable to verify the accuracy of the yields on the table) from the stock exchange. Yet the poor chap must be worried about inflation to do that and given that OCBC trades in lots of 20,000 it looks like an attractive buy except that the investor is perhaps, unaware that there is a CALL next July at 100.00 without a step up special feature (which means it will definitely be called).
Subordinated debt are not bad, in fact. Perpetuals too. For instance, Singapore Post Limited which is not listed above because it is considered a Senior Perpetual, which means it reverts to a Senior bond if the company should default but in all other circumstances, the bond functions as a perpetual. Thus
some perpetuals are better than the subordinated or senior debt of other companies. So do your homework well and you will be rewarded.
The trend, however, is worrying. The SGD dollar market has 40 of these perpetuals and subs. 19 were issued this year.
Dear MAS, it does not say that the market has turned sophisticated investors overnight.
It just says that there are alot of people out there who are interested in hedging themselves from the high CPI rate here. And now it would appear that you are denying the ordinary Singaporean citizen saver the opportunity to just hedge for inflation by giving them additional credit risk on instruments they do not understand for the sake of growing the capital markets here.
Dear Readers, do note that the banks that sell you this stuff are not obliged to buy it back from you. And banks, as a general observation, do not have much limits to buy alot of perps and subs for themselves because these are heavier on their balance sheets.
Just some food for thought.
Link to an old article I wrote on SGD Perpetuals.
|STAYING AFLOAT IN THE POOL OF SGD PERPS|