Bonds In Conversation : Bubble ? What Bubble ?
|New Year Brings Bumper Crop of Bonds in Euro Zone : NY Times|
|Fed concerned about overheated markets amid record bond-buying : Bloomberg|
Let’s suppose if the authorities were to ask me casually, in a purely hypothetical scenario, if I thought that corporate bonds are brewing a bubble ? What do you think my response would be ? “Bubble ? What bubble ?” Statistics do not lie.
All new issues heavily oversubscribed between 2 to 10 times. The pattern is highly identical, the higher the coupon and more toxic the name, the higher the PB interest and also the PB rebate that private bankers get. No risk, no reward. On the other hand, we have NUS pricing a 5Y SGD 250 mio paper which did not even see the street as it was probably gobbled up internally, by a bank.
I guess we can say banks are strengthening their balance sheets with depositors money and retail customers are feeling sophisticated that they are trading in formerly distressed companies.
So my reply. “No bubble at all”. And under my breath, “for now”.
But Paulo Coehlo of the Alchemist fame said, “Straight roads do not make skillful drivers.”, just a day ago on Twitter.
About 150 new issues last year, only a small handful of names are trading under 100.00. That is quite a feat. For I have decided that I shall not bore you with credit spreads as I have learnt recently that most retail investors prefer to focus on the capital protection aspect of bond investing.
Let pay tribute to 2012’s fallen angels (prices not verified).
And I am wondering why no one is interested in Cathay or Aviation Capital (which trades under the Pacific Life label) ?
Now back to the 2013’s New Year goodies.
9 new issues (SGD1.465 bio), matching the same quantum done for the same period in Jan 2012. As I write, I get word that IFR has sent out report that Ezion Holdings pulled the plug on their potential SGD 100 mio perp issue. It was really down to the wire in a game of bluff with investors who were told yesterday afternoon the deal would go ahead but size cut down to SGD 75 mio causing bids to scamper.
No surprises given that the table of fallen angels above have most of the shippers glaring at you.
It is a buyers market with plenty of offerings and plenty of over subscriptions (if you are in fashion), like Biosensors Intl.
It will be a bountiful month, Jan 2013. The junk keeps coming, and they usually save the good stuff for last. Notice the higher 11.25% of Powerlong USD 5Ync3Y today (initial cpn 12.75%) ? Not before Guangzhou Properties USD 8.75% (last at 102) or Yuexiu Property (Baa3) USD 5Y and 10Y at 3.25% and 4.5%, which are both underwater at about 97-98 cts .
More to come soon. As I speak, Maybank Kim Eng comes with a 1Y SGD 1.35-1.45% paper which is obviously to finance margin trading accounts.
It is a buyer’s market now and don’t tell them tell you otherwise. As for bubbles ? Let’s talk about them another day.
Ps : Will not be taking credit for the Biosensors call or the touch-not Ezion warning. You can buy me a coffee some time if it has helped you.
- New Issue Reviews : Hong Fok Corporation 5% 5y Bond (tradehaven.me)
- NEW ISSUE REVIEWS : GUTHRIE GTS 5Y 4%, EZION HLDG PERPETUAL NC4Y 7.8-8% and UNICREDITO SPA LT2 10.5YNC5.5Y 5.5-5.75% (tradehaven.me)
- Bonds In Conversation : Off to A Roaring Start – India 1 China 0 (tradehaven.me)
- New Issue Review : Biosensors 4y 5.25% (tradehaven.me)
A bubble isn’t just a bubble at the point of its bursting. The bond market is a bubble if there is no distinction in credit risks. So the market today is a bubble. Just some bubbles taking longer to burst or as long as no one decides to prick it. And mind you, unless this is a balloon and you can find its opening, you really cannot slowly prick a bubble without letting out a burst.
How about No Bubble till popular consensus says its a bubble ?
Or No Pimple till we notice the Acne ?