Bonds In Conversation : The End is Nigh, A Sign O’ Times ? NOT !

It is Murphy’s law at work that a person who hates doomsayers has turned into one.

I am not trying to spook, or frighten, or sensationalise things here. The Olam bond debacle is a small storm in the teacup for the local bond market which is unused to the odd crisis, yet I feel the duty to warn the market of the sign of times to come.

Browsing through the headlines and outlooks for 2013 in the past week has left me cold. For there is no comfort to be found in 2013, assuming we survive the Mayan apocalypse in the coming weeks.

NY Times quoted this on Twitter recently.

Reasons to be worried: In 2008, it cost 800bp to buy protection against a Philippine default. In June, the price was 220bp. It is now 100bp.

Morgan Stanley published the 2013 Asia credit outlook with the title of The End of A Great Credit Story.


“Through the end of November, U.S. companies with below investment-grade ratings sold $854 billion in junk-rated bonds and ‘leveraged’ loans, a record amount that outpaces the $785 billion sold in all of 2011 and even the $825 billion sold in 2007 before the financial crisis.” Wall Street Journal

JP Morgan

A turning point for global bond yields? JP Morgan reckons so. Wall Street Journal

CME Group

Is Corporate Debt the Next Asset Bubble?

USA Today

Money Watch: Bond funds too risky if rates rise? – USA TODAY

I had lunch with a few old friends yesterday. Well-off bankers looking to park that retirement fund and enhance yields. Bonds look like that immediate solution, the same solution folks out there were looking for when they bought into Olam. The global baby boomer rush into bond funds breaking records again this year despite the lowest yields in history.

Bond fund inflows crosses $400bn mark : Financial Times

I voiced my concerns to them but ended up being peppered with questions like “What to buy ?” and “What currency to hold ?”.

I am still thinking of an answer.

Meanwhile, lets check out the activity this week.  We saw Keppel Land do a 7Y USD bond issue at 3.259% on 4 Dec which tanked immediately after issue and is holding at 99 cents now. Oddly enough, the Keppel Land 12Y 3.9% 2024 rose in price which I am unable to verify.

Back to SGD bonds and I decided to do a table of bonds that could be affected by the Olam incident by just a casual 1 month price difference observation. Here goes.

olam contagion

Qualifier : Not suggesting that price changes are a direct result of Olam bond price contagion or that the prices in the table are accurate to market levels.

An striking similarity between all these papers is that these mostly appear to be the higher coupon, retail target papers, giving me the impression that we are seeing some small exits from retail accounts. The institutional players who are our regular bond funds, who have not bought much into Olam bonds this year, are perhaps less distressed, as with the hedge funds.

From the media reports which have made a celebrity of Michael Dee, I am going to assume that Olam is not out of the woods yet, which is something largely out of our control.

Thus, I am leaving you with the daily Olam price levels which are, I emphasise, not “live” prices. We can see that the prices have stabilised off their lows and just slightly lower today on the weekend uncertainty and the US Unemployment numbers tonight.

OLAMSP 6 10/25/22 SGD 81 84
OLAMSP 5 3/4 09/20/17 USD 86.5 88.5
OLAMSP 2 1/2 09/06/13 SGD 95.5 97
OLAMSP 5.8 07/17/19 SGD 84 87
OLAMSP 7 09/29/49 SGD 79 82
OLAMSP 6 08/10/18 SGD 86 89
OLAMSP 3 02/25/13 SGD 98.5 100
OLAMSP 7 1/2 08/12/20 USD 88 90
OLAMSP 4.07 02/12/13 SGD 98.5 100

Have a great weekend.