Don’t Be Scared By What You Are About To See – SGD Rates & Bonds

Before I start, an old cliche, “What goes up, must come down.” Interest rates are unexcepted and for that reason, bonds as well.

    Feb. 5 (Bloomberg) — Asia is leading the worldwide retreat
in newly issued corporate bonds after surging issuance and a
strengthening global economy spurred some investors to favor
     Almost 79 percent of the dollar bonds sold in January by
companies from Asia outside Japan lost money by the end of the
month, from 1.3 percent a year earlier, according to data
compiled by Bloomberg. That compares with 52 percent of new
European deals and 46 percent in the U.S.

Do Not Fear ! Tata Communications still bucks the trend !! Bid still at 101.00 this morning.

Most retail investors are only used to the good years, for corporate bonds only really took off in the later half of the last decade when the new issuance floodgates opened with papers to whet every palate.

Take a look at this 2001-2013 10Y interest rate chart.

10Y SG Interest Rate Swap

We are sitting in the small yellow circle now.

5-Dec-12 BLACKROCK Fixed Income has changed over the past 5 yrs – it could take a small rate increase to lose total returns
5-Dec-12 BLACKROCK If interest rates increase by 72 basis pts, the total return for 5-10 Yr Credit could decrease to 0%
11-Dec-12 BLACKROCK Fear of the uncontrollable. Top 3 risks, according to investors:
27-Dec-12 BLACKROCK How much would interest rates have to increase to eliminate an index’s total return? 

Right now, we do not have to worry much because the biggest loser in this would be……….. The FED !!! It is estimated that the Fed owns 27.96% of total outstanding 10Y treasuries and mortgage bonds.

Singapore government bonds are a different story. It looks like a love lost story for the past month and banks cannot wait to rid themselves of that stuff and prices have been decimated. The Straits Times or Business Times will not be reporting this yet and banks will continue to market bonds off their balance sheets by offering retail “attractive” leverage packages, giving you the 10% return on your perp.

31-Dec-12 4-Feb-13
MAS 5Y 04/2017       108.70        107.90
MAS 10Y 09/2022       116.56        114.09
MAS 15Y 03/2027       119.60        114.87
MAS 20Y 09/2030       111.61        106.58
MAS 30Y 04/2042       106.84          98.91

Source : MAS.

This is the 10th anniversary of the 2003 bust up which I was caught right in the heart of. Whilst I do not think that it is possible to revisit those days again, in our new climate of central bank manipulation, I think that we could be in for a cooling period for bond enthusiasts.