Bonds In Conversation : Grinding To A Halt At Crossroads

Wealthy Friend’s 25th marriage anniversary coming up and I thought, 25 years ? That is a long time. Almost a lifetime and more than half my son’s life time for that matter. It is a priceless fact that they have married more than half their lives and known each other 10 years before that.

The best things in life are free.

A week has passed, only 1 new issue. I am not about to cry for all the happiness around me. Yes. The less the better. Less new  bonds = less supply = no rush to sell

That is as far as corporate bonds are concerned. Year to date issuance SGD 3.375 bio vs  SGD 5.027 bio this time last year.

The government keeps on printing, though. SGD 1.2 bio of new 30Y bonds when the old one is dying like a dog. Maybe a fake death only to rally after the auction on the 26th ? [get your ATM cards out this weekend !] Yield target about 2.8-2.9% ? (before leverage of 90%?)

Now do not be too hasty, because you just need the yield to move to 3.25% before the margin call hits. This is a 30Y bond. Now shall we talk about perps again ? The infinite maturity bonds ?

I do not begrudge the MAS for introducing new supply now instead of succumbing to market persuasion like they have in the past, which resulted in the unnatural rally last year in bonds to record low yields, driving unfortunate retail customers to their demise in certain corporate perpertuals.

The successful launch of 3 year papers like Raffles Education is a sure sign that the market is at crossroads now. I am proud that retail investors are making a stand as government bond yields continue to flounder.

20-Feb 31-Dec CHANGE
SIGB 1 5/8 04/01/13 Apr-13  0.28  0.27 0.01
SIGB 2 1/4 07/01/13 Jul-13  0.28  0.22 0.07
SIGB 0 1/4 02/01/14 Feb-14  0.26  0.22 0.04
SIGB 3 5/8 07/01/14 Jul-14  0.25  0.22 0.03
SIGB 1 3/8 10/01/14 Oct-14  0.27  0.28 -0.01
SIGB 0 1/4 02/01/15 Feb-15  0.27  N/A N/.A
2Y Jul-15  0.31  0.27 0.04
SIGB 1 1/8 04/01/16 Apr-16  0.32  0.26 0.05
SIGB 3 3/4 09/01/16 Sep-16  0.39  0.29 0.10
5Y Apr-17  0.47  0.31 0.16
SIGB 4 09/01/18 Sep-18  0.72  0.57 0.15
SIGB 2 1/2 06/01/19 Jun-19  0.95  0.80 0.15
SIGB 3 1/4 09/01/20 Sep-20  1.34  1.12 0.22
SIGB 2 1/4 06/01/21 Jun-21  1.47  1.19 0.28
10Y Sep-22  1.61  1.30 0.31
SIGB 3 09/01/24 Sep-24  1.95  1.62 0.34
15Y Mar-27  2.26  1.91 0.35
20Y Sep-30  2.46  2.09 0.38
30Y Apr-42  2.84  2.42 0.41

My outlook is slightly hazed. Between the end of QE as indicated by the hawkish FED minutes last night, the Japanese currency war going on which threatens to drag the rest of Asia (except China – suffering FDI outflows for the past 10 months) along and the Italian elections this weekend plus insurmountable structural problems in Europe, I can say the only theme that remains clear would be the theme of SLOW STAGNATING GROWTH.

An interesting read on the phenomenon of austerity link.

That should be bond positive in normal times but we are in odd times now and flows are controlled by all the mutual funds and hedge funds that have gotten too big to fail. As bankers continue to convince us that we are too dumb to manage our own money, the power shifts to the hands of a few.

My take is that the situation is threatening to erupt into a loss of confidence, as I had written for my 2013 outlook. There are various regulatory issues that are in the works such as the financial taxes in Europe and Dodd Frank regulations as well as the up-coming US sequestration (1 Mar) that have repercussions for the common folk.

I will avoid bank bonds, illiquid local currency debt, cyclicals and high yield property names that do not have sufficient cash holdings. The SNS bank ruling limbo is a huge cause for concern and that Turkish yields have fallen under Russian yields is another sign.

So good luck, keep liquid, take off those leverages opportunistically and do not write off gold yet.

I leave you with indic prices of this year’s issues, Olam prices and last year’s benchmarks.

HDB Jan-18 99.67
GOODPACK Jan-23 99.5
KIMENG Jan-14 100.0499
HONG FOK Jan-18 100.3086
GUTHRIE Jan-18 100.502
NUS Jan-18 99.69
UNICREDIT Jul-23 97.5
BIOSENSORS Jan-17 101.25
ICICI Jan-20 99.75
HPL Jan-18 100.35
OLAMSP 6 3/4 01/29/18 SGD 94.50/96.00
OLAMSP 6 10/25/22 SGD 90.00/92.00
OLAMSP 5 3/4 09/20/17 USD 92.60/94.00
OLAMSP 2 1/2 09/06/13 SGD 99.6/100.00
OLAMSP 5.8 07/17/19 SGD 92.50/94.50
OLAMSP 7 09/29/49 SGD 84.00/86.00
OLAMSP 6 08/10/18 SGD 94.50/96.50
OLAMSP 3 02/25/13 SGD 99.50/100.25
OLAMSP 7 1/2 08/12/20 USD 94.50/95.00

Genting still under pressue on rumours the Malaysian government will be dissolved today.