Bonds in Conversation : Suffer the Snake

It looks like I have a critical audience, so I apologise if you manage find any offensive material in this one (sniff sniff).

The US is nearing the sequester deadline and the sharp spending cuts that could spiral the economy into another recession especially when most of the revenues are going to come in the form of higher taxes.

The FED just bought back another 900 mio of treasuries last night.

We have a currency war of sorts going on (watch for article on the effects on Singapore).

Meanwhile economic data has started to disappoint with GDP numbers out of US, Japan and most of Europe (= G3 =most of global GDP) highly dissatisfactory.

On a bright note, equity markets are at their highs, and pre crisis levels.

How do we make sense of this ?

It means that corporate bonds have not suffered as much as govis during this time as credit spreads have not been affected by interest rate spikes. Yet any economic slow down could bode well for bond holders as it means that the rate hikes that have been priced in to the curve could be delayed. By that, I mean the Government bond holders for an economic slowdown is bad news for equity ? and thus, corporate bonds ?

I have snakes in my head ! And I am caught in the hypnotic glaze of the Cobra. SHOULD I HEDGE OR NOT ?

Table of SGS.


*As of 14 Feb close.

Government bond prices have headed south and we are starting to see some effects on the corporate prices.

Singapore Weekly Corporate Bonds


Thus, Genting prices showing some DISCONNECT. SGX retail issue still trading at 101 to 102 (net of accrued interest) while the wholesale tranche is going under at around 98.00. The 2 tranches are NOT FUNGIBLE so it is not possible to buy the the wholesale tranche to sell into SGX though – pity.

Of the 2013 issues, prices appear to be holding up. Except for Unicredit ! as the Monte Paschi scandal continues to unfold, with their former head arrested yesterday with some 54 mio secreted away.

Tata Comm 4.25 02/01/16 Feb-16 101
HDB 1.23 01/30/18 Jan-18 99.55
Goodpack 4.75 01/30/23 Jan-23 99.75
KimEng 1.35 01/28/14 Jan-14 99.99975
HongFok 4 3/4 01/24/18 Jan-18 100.30138
Guthrie 3.7 01/23/18 Jan-18 100.19894
NUS 1.038 01/23/18 Jan-18 99.54
Unicredit 5.5 07/30/23 Jul-23 97.25
Biosensors 4 7/8 01/23/17 Jan-17 101.40048
FNN 3 01/21/20 Jan-20 99.998413
CDL 1.57 01/16/15 Jan-15 n/a
ICICI 3.65 01/14/20 Jan-20 99.5
HPL 3 1/2 01/15/18 Jan-18 100.35148

I have nothing to suggest to bond holders right now except that I will be making my near term SGD interest rate calls based on the upcoming Budget and my forecast of the April MPS (monetary policy statement). The only thing I can do now is to write my currency war piece and perhaps make some sense of Singapore’s position.

The big picture remains that there is more downside than upside to fixed rate bond prices and risk remains on the longer tenors. Beware too, those on leverage, that funding costs may not remain low forever.

Hedge suggestions – PST US (double leverage short 7-10Y UST) or TBT US (double leverage short 20Y UST). Indirect hedges – SDS US (double leverage short S&P 500), GLD US (long Gold).

And finally, Olam prices. Don’t shoot me if they are wrong.

OLAMSP 6 3/4 01/29/18 SGD 94
OLAMSP 6 10/25/22 SGD 91.25
OLAMSP 5 3/4 09/20/17 USD 92.5
OLAMSP 2 1/2 09/06/13 SGD 99.25
OLAMSP 5.8 07/17/19 SGD 93.5
OLAMSP 7 09/29/49 SGD 86
OLAMSP 6 08/10/18 SGD 95
OLAMSP 3 02/25/13 SGD 99.5
OLAMSP 7 1/2 08/12/20 USD 94
OLAMSP 4.07 02/12/13 SGD MATURED !!