Bonds In Conversation : Let Me Eat Bread, I Don’t Want Cake
Market lapsing into year end lull as origination desks wind up after a highly charged 2nd half year. I am also seizing the opportunity to take a short break with the kid to balmy Melbourne (top 10 most liveable city in the world ?) and get away from the wintry and cheerless trading market of Singapore.
It does look like next year will be an extension of the current sobriety and we should be looking out for new excitements. Spoke to an bond origination chap yesterday and his mood is pretty sombre. He says most of the new issues so far have not made money, not that he is feeling guilty for afterall, it is a market of willing buyers and sellers.
So I dug up the most recent SGD issues and their respective bid prices to prove his point. Here goes.
From a pure price appreciation perspective, the recent issues have not been promising. In fact, I did a rough average of the bonds issued in the 1st half vs the bonds issued in the 2nd half, just for very rudimentary comparisons. The average price of issue in the 2H, not weighted with issue size, is about 100.58 while the mean price of bonds issued in 1H is 101.32.
Who’s to blame when you indicate a coupon of 4.75% for say, the recent Lippo Mall and then issue at 4.48% ?? That is from 100 to 101.35 (approx) !
The 30 year government bond has the honour of being the best performing bond this year in Singapore. The issue has a coupon of 2.75% and was issued at 98.191 in Mar this year. It is trading at 108.00 now.
I dont want cake. Give me bread ! Simple things in life are sometimes overlooked. Like the 30Y SGS. Who would have thought that you could have gone to your local ATM machine and got yourself SGD10,000, 20,000 or 500,000 of this paper in March and now be over 1,000, 2,000 or 50,000 richer ?
I am so uncomfortable with the headlines out of Genting these days yet I cannot pray for Singaporeans to gamble a bit more to save them.
Yes, we are ending a long year indeed and going headlong into an even longer and drearier one. For this has been the year of actions, but the next will be the year of consequences and in my opinion, capital preservation will no longer work. The answer will be in active portfolio management.
I leave you with the latest prices and time for thought.