Bonds In Conversation : Chatter On The Street

Hello 2013, Goodbye Patti Page.

2013 opens to a US Treasury sell off of about 8 bp to 1.84% in the 10Y bond, that is just 9 bp shy of its 3 Jan 2012 opening level of 1.95% and 50 bp above its low yield of 1.38% attained in Jul 2012.

By all measures, Singapore rates have outperformed US rates. The 10Y SGD government bond yield is still 1.34% after opening 2012 at 1.64%.

Sifting through the noise on the street which is mostly headlines on the fiscal cliff save this week, the rhetoric has been increasingly bond negative. We do not have to worry about an avalanche yet, not especially when we are going to have austerity in 3 of the 4 largest economies in the world. US – spending cuts from fiscal cliff, Eurozone and China – austerity drive. That leaves only Japan to spend. Technically, less spending means less debt and less growth and thus, lower rates ?

I got to admit, I am not very bullish on credits and corporate bonds this year. So I will better keep my mouth shut while writing a credit column.

OCBC published an useful little guide on SGD credits yesterday. I did a little summary table for their credit calls for the readers.

Ascendas Real Estate Investment Trust overweight
Ascott Residence Trust overweight
CapitaLand Ltd overweight
CapitaMalls Asia Ltd neutral
CapitaCommercial Trust neutral
CapitaMall Trust underweight
Central China Real Estate Ltd neutral
Cheung Kong Holdings Ltd overweight
City Developments Ltd neutral
Ezion Holdings Ltd neutral
Ezra Holdings Ltd underweight
Frasers Centrepoint Trust underweight
Genting Singapore Plc neutral
Global Logistic Properties Ltd neutral
Goodpack Ltd overweight
GuocoLand Ltd underweight
Henderson Land Development Company Ltd overweight
Hongkong Land Holdings Ltd underweight
Hotel Properties Ltd overweight
Hyflux Ltd underweight
Keppel Corp Ltd neutral
Keppel Land Ltd overweight
Mapletree Commercial Trust overweight
Mapletree Industrial Trust underweight
Mapletree Logistics Trust underweight
Nam Cheong Ltd overweight
Neptune Orient Lines Ltd underweight
Olam International Ltd overweight
Overseas Union Enterprise Ltd underweight
Shui On Land Ltd underweight
Singapore Post Ltd overweight
Starhill Global Real Estate Investment Trust neutral
Suntec Real Estate Investment Trust neutral
Swiber Holdings Ltd underweight
United Engineers Ltd neutral
The Wharf (Holdings) Ltd underweight
Wheelock & Co Ltd overweight
Wing Tai Holdings Ltd overweight
Wing Tai Properties Ltd neutral

First, I do not understand what overweight, underweight and neutral means in the context of bonds. I will just suppose it means buy relative to another bond and not load up on the bond. Second, I am not cheering for any calls. In fact, I see little cheer at all with a bunch of bond recommendations asking investors to buy papers at miserably sad yields.

But ask ourselves, would any report you read be a bad one ?

My understanding is simple if you are an equity analyst or a bond analyst. You cannot ask customers to buy rice when you are selling bread. And I am sure there is a more elegant way of putting it.

What is the chatter these days ?

NYTimesglobal Big in 2012, but the Future Is Hazy for Bonds



When I started writing this yesterday, I did not expect bonds to sell off so much in one day and the curve to steepen so much. The purge has begun.

My view is that the USD/SGD will head to 1.26 before April which will lead to a mini bond stampede before the 30Y auction slated for end Feb. The saving grace is that MAS will be flushing liquidity in the short end to keep the short end rates lower but will be largely helpless to higher long term rates.

Thus 10Y rate is at 1.90% now which means all the 10Y papers issued July-Aug and Oct-Dec will be under water. If you cannot find a decent bid, there are various indirect hedges you could deploy.

* sell US 10Y treasuries via an ETF or CFD ( TBT US for 20Y, PST US for 7-10Y, do note that these are double leveraged ETFs)
* buy USDSGD to hedge an outflow from Singapore
* buy GOLD for inflationary hedge (in this case, inflation is not the real concern)
* pay 10Y irs if you have a private account

In conclusion, the OCBC piece is great to help us choose but it does not tell us that we cannot buy because rates are just headed higher after a 5 year hiatus of zero rates.


OLAMSP 6 10/25/22 SGD 91.50 81.48
OLAMSP 5 3/4 09/20/17 USD 96.50 83.98
OLAMSP 2 1/2 09/06/13 SGD 97.75 95.99
OLAMSP 5.8 07/17/19 SGD 91.77 82.31
OLAMSP 7 09/29/49 SGD 85.00 75.44
OLAMSP 6 08/10/18 SGD 92.50 15.78
OLAMSP 3 02/25/13 SGD 99.50 97.48
OLAMSP 7 1/2 08/12/20 USD 97.34 84.33
OLAMSP 4.07 02/12/13 SGD 99.50 80.96