Bonds In Conversation : The Great Rotation Is In Vogue
ugliest angpow i have seen
We have to talk about this in case you have not seen any market headline with ROTATION in it. Rotation is in vogue now. Rotation from bonds to equity, that is.
FT – Great rotation: reasons not to believe
and in case you have no access to FT Premium (like me), here is free Yahoo headline.
Have We Entered The Great Rotation?: Charles Schwab
Anyway some hedgies that I know are all spewing this “rotation” word to justify the madness that has gripped the market. It does not look like it is going to go away and there is little reason to believe that bonds will rally from here.
| Interest Rates Will Spike This Year: Soros – http://CNBC.com |
| Emerging Bond Market Points to Risk Exit – Wall Street Journal |
Soros, Bill Gross, Jim Rogers, Marc Faber… all singing the same tune.
The most controversial yet honest piece came out of Bank of America, of all places, describing a potentially disorderly sell off in store for the market that is exacerbated by the rise of the ETFs and bloated bond mutual funds.
Rising Rates Could Create A Disorderly Bond Market Sell-Off Unlike Anything We’ve Ever Seen
I agree it is possible.
Without going into potentially libellous details, I encountered a fund manager of a gargantuan bond fund which is of course not based in Singapore. The sizes that we are dealing with can dwarf small economies. How do we squeeze 100 bio worth of bonds from a small country (just because the world wants exposure to it) when their bond market does not even exist ? And then, imagine the sell off later when the fund takes profits ?
Another Asian Crisis in the making ?
I will not try to sow any further doubts in your heads. It is Gongxifacai time next week and also a good time to do some reflection on each of our portfolios.
And as a hongbao surprise, I have compiled a table of almost every single issue since 2012 and their changes in the week. But with little time to vet the prices, I hope there are not too many mistakes. (do note that some of the official prices I notice like for the Mapletrees etc, do look a bit suspect or just complacent markings)
Thanks again Tradehaven – excellent piece,
Some other examples of recent hits to perpetuals ……… which I know to my personal cost! ………
a) Cheung Kong’s S$ 5.125% perpetual has dropped below S$ 97 – a fall of almost S$ 3.50 in just five weeks,
b) Best price I got quoted today for my Ezra S$ 8.75% perpetual was S$ 95 – a fall of over S$ 3.50 in five weeks – I decided to hold, and
c) Standard Chartered US$ 7.014% perpetual down to US$ 105 – a fall of ~ US$ 3 since the new year – but it was a stellar performer last year, so I’m not complaining too loudly.
DBS 4.7%’s and Hyflux 6%’s seem to be holding up………. for now. My bank is of the view that the Cheung Kong S$ Perpetual sell-off is “overdone” – but there again I see what continues to happen to Cheung Kong’s recent US$ 5.375% perpetual offering……….. ugh! I wonder what it is with Cheung Kong paper at the moment? I have a few “chums” who went into that hoping to flip it quickly for a fast buck – they’re hurting badly now.
I see that there is a reluctance to bring new S$ issues forth at the moment – that is healthy IMHO – but I’m told by my bank that we’ll likely see a couple of well known names soon after CNY trying to put away medium term paper. I think the runners have finally gotten the message from even the more usually relaxed punters regarding perpetuals. May we live in interesting times.
P.S. In relation to another thread …………… the Brokerage I usually get is 0.25%.
JC
Banks bank on our short term memories, until the next buck.
Cheung Kong perp had a pretty shocking drop from 100.50 on 1 Jan to 96.50/97.25 yesterday. Their USD paper much worse off at
The high for CK SGD Perp was 108 lvl sometime in 2011.
We can blame CK Perp and Reliance Perp for floundering because of the absence of a coupon refixing.
Like I said, I like the 7% handle even for good quality perps to feel comfortable about something going on for perpetuity.
I am keeping my fingers crossed for less volatility in markets ahead because if when it comes to forced selling, there is really not enough limits in banks to even take 5% of each issue.
Good luck.
JC,
I heard from my banker that they even stopped offering leverage for Cheung Kong since last year. I’m not sure why but there must be sometime that the bank feel uncomfortable. Anyone hearing the same thing elsewhere?
Hey Barnes,
I just checked up on a certain “leveraged list” a local brokerage sent out and Cheung Kong Perp is offered at 101-102 lvl with LOAN OF 62% !!! Cost of loan is 1.65%.
Rgds
Thanks for the update tradehaven. But that’s a pretty high premium to pay at 101.
Actually I am looking at CNP Assurances 7.5% Perp, the price has came down from recent high and looks pretty attractive now. I like it since this is backed by the France government and has a refix every 6 years. Any thoughts?
Corrected. CNP is guaranteed by the CDC which is not, technically, the French govt which owns a 10-15% stake in it. Suffice to say, they are our Temasek equivalent. There is no refix in the perp as far as I can see and the price has somehow lept 3 cts in the past 3 days to abut 105-ish.
Pretty sure there is a refix for the CNP Perp issue. It’s stating 648 bps every 6 years.
Yes I’m seeing 105-ish from my broker too but unfortunately they no longer do LTV for perp which kind of put me off….
Yes. Jumped about 2-3 cts in 3 days.
I could be mistaken about the refix which looks like a hefty one and probably for a good reason too.
There is some brewing in the various jurisdictions on bond holder losses as in the case of the SNS bank.
I think the EU is considering the laws for bond holder obligations at the moment.