Bonds In Conversation : Brace For Impact
” March 21 (Bloomberg) — Investors stand to lose most of the $1.28 billion they put into Suntech Power Holdings Co. after the solar manufacturer said it wouldn’t resist a bankruptcy petition filed in China.
The company, based in Wuxi, outside Shanghai, had more than $2 billion in debt and defaulted on $541 million in bonds due on March 15, prompting eight Chinese banks to ask a local court to push Suntech’s main unit into insolvency.
The largest outside owners of Suntech’s American depositary receipts are Renaissance Technologies Corp., Invesco Ltd. and Shah Capital Management. None of the bondholders or shareholders were available for comment.”
Hopes of a government bailout has faded and the result is the first default out of China.
Cyprus and now Spain.
Spain to Tax Banks 0.2% Maximum on Deposits, Montoro Says.
A slow economic recovery starts only with blood letting and so far, we have only been cauterising the wounds led by Fed buying and BOJ now driving 10Y JGBs to new lows in yields.
Our memories are short term as far as investments are concerned because greed powers us forward.
A question I would like to pose to readers this week is an important one.
Is it so bad to sit on 50% cash ?
On the Singapore Front
3 new issues.
ASL Marine 4.75% 04/2017 SGD 100 mio now going at 100.00/100.25. I do not expect it will be flying anytime soon.
CDL did a 10Y SGD issue at 3.48% 04/2023for 150 mio. Price is 99/100now. Not flying either.
And finally, BOC Aviation, the former SIA Leasing, did a 2Y at its lowest 2Y yield ever at 2% 03/2015. The price is 99.75/100.25.
On our radars, Swiber Perp is being actively watched and marketed. It is 93.50/95.50 now (12.85/11.86%). Cheung Kong Perp 5.125 09/2016 callable is trading up at 98.50/98.75 after hitting a low of 96.50 a month ago.
Unicredit sub 5.5% 07/2023 callable 2018, is 94.50/96.00. It is down 1.5 cts on the week since Cyprus last Friday. [Unicredit sub debt 5Y CDS has widened about 2% since last week)
Junk seems better for the uncertainty in Cyprus, with Olam seeing some rebound in their prices.
I am uncomfortable and uneasy with the situation where everyone is sitting in cruise control mode. Yet it is hard to argue with all the last tickets to paradise trades our brokers and bankers are sending out to us. Thus I will leave you with the usual weekly price updates (all unverified).
2013 New Issues
Olam Bond Prices
2012 Benchmark Prices
Related articles
- China’s Suntech in $541m default (bbc.co.uk)
- SGD Bond Alert : Swiber Glaring At Me (tradehaven.me)
- Bond Alert : Unicredit SPA SGD Sub Debt (tradehaven.me)
Hi tradehaven, do you have any idea if based on the last done price, is olam 2022 6% price moving up or down for the past week? Thank you so much
Seeing 89.00/90.00. Stable.
Good morning and thank you so much for the information. Not sure if there’s any where I can find the graph of how the price of this issue is moving for the last 1 or two months, especially cos the spread is quite big at times. Am I right to say the trend is that it went down from 92 sharply to 89-90 and stablised at 89 -90 ? Hope the ‘recalibration’ by Mr Sunny in April will lift the bond prices.
Hey Oldfolk
Hope you are right.
The prices came off not so much, I suspect, because of Olam related news but because interest rates were on an uptrend and long end 10Y bonds are falling out of favour with the marketplace.
Good luck !
Hi Tradehaven, thanks for your explanation. May I ask, which category of bonds that will be most badly hit when interest rate rise? As you have explained, one of them is probably longer tenure bonds such as 10Y bonds. But how about perpetual callable in about 5 yrs or so such as GLP perp, Maple treasure perpetual, Maplelogistic Perpetual?
And is it true that high yield bonds will be less affected than low yield bonds when interest rise? Wondering if Olam bonds are considered “low yield” or “high yield”.
Thank you.
Yes Oldfolk,
Investment grade bonds and government bonds will be first to get hit.
Perpetuals with no step up calls will be hit harder because the assumption is that they would not call.
High yield bonds will be less affected and Olam >1-2Y is now in the “high yield” category.
It depends on why interest rates rise as well.
We would be assuming that interest rates will rise when the economy pick ups.
Currently, the rise is expected from the Fed as they will withdraw stimulus.
In that case, money would be flowing back home to the US, leaving mostly the onshore investors behind.
I still do not see that as making Olam a compelling buy given the alternatives out there.
But your Olam bond should not be seeing much more loss as well.
Hopefully, the commodity cycle will turn higher, and turn the fortunes of commodity companies around.
Good luck !
Hi Tradehaven, thank you so much for your kind explanation and good wishes.
Mapletree Treasury Perpetual 5.125% issued last year doesnt have any step up call. It only has a reset 10 yrs later I think. It has been trading above par since launched from what I know. I supposed its still trading slightly above par. In your opinion, when interest rate rise is it quite likely it will fall below par and usually how much below par will it get? 80-85 region? 85-90 region? slightly below 100, say 97-100 region? Wonder if its a good idea to sell it off now or real soon.
It is a perpetual but I supposed the credit quality is not bad since it is a 100% investment vehicle of Temasek but interest rate is rising soon.
Many thanks in advance.
Happy Palm Sunday Oldfolk,
I believe Mapletree Treasury does have a call and a step up in 2022 if the bond is not called.
The coupon then would be fixed at the prevailing 10Y interest rate + 4.467% which makes it very reasonable indeed.
Little chance of the bond falling under 100 in that case unless its credit quality deteriorates massively.
Do check your bond termsheet for the call details unless I have the wrong bond in mind.
Best rgds
Hi tradehaven, hope I am not disturbing you during the break. I come across this OTC bond issued by Standard Chartered Bank that gives 5.25% coupon. The ISIN is XS0356750868. It matures in 2023 April 10th. I am wondering if you have any details on it? Eg. When was it launched, what is the bid and offer price now, any call dates, its credit rating from S&P etc. I was thinking if its a new launch, perhaps the price will slowly climb up and its not too late to buy now? Thank you so much Mr tradehaven.
This looks like their old sub that was issued in 2008.
Callable 04/2018 ie. 5 years time at 100 or with a coupon change every 6 mths at 6m SOR+3.103% which makes it immune to interest rate swings as it becomes a floating rate note.
Current price is 104/105 level ie. 4.353%/4.136%.
Stanchart 5Y sub cds is about 2%, our 5Y interest rate is under 1%. So this paper looks alright don’t you think ?
Hi Tradehaven, much thanks for your kind information. It sounds really good that it will be unaffected by interest rate rise between 2018 and 2023. Not sure if the price has been hovering around the 104/105 region for a long while and if it is ok to go in at this price. I am sorry if I sound quite dumb to ask this: does sub means subordinate bonds which means that it is not senior bond? Does it mean that should a bank defaults, the fixed deposit investors and senior bond holders will get paid first and subordinate bond holders will only have same pirority as shareholders or preference share holders to get back anything? Or is it banks normally only issue subordinate bonds, seldom do they issue senior bonds. Only less stasble firms like Olam etc issue senior bonds. I think DBS and UOB has a few ten year bonds around 3.1 or 3.3 % coupon, are they subordinate bonds too? Many many thanks again.
Thank you Tradehaven for your explanation on Mapletree Perpetual. I will follow your suggestion to double check the term sheet again.
Btw the 30 yr SG government bond which mature in 2042 giving 2.75% coupon is trading slightly below or around par now. Do you think it’s a good idea to pick up some of them from the stock market? I am not hoping for capital appreciation though that will be a plus factor. I am just hoping to get the 2.75% of coupon and that I dont suffer any capital loss. I seen it come off from 108 or so not sure if its likely to go even lower from here.
Thank you so much and have a rewarding and fruitful trading day ahead.
Can’t say if its a buy. You think 2.75% is good for 30 years ?
Our inflation is 3.6%.
As an illustration, the US 30Y long bond is now at 3.18% because the FED has bought up majority stake in their QE purchases.
10Y high was 5.91% and 10Y low was 2.45%. We are closer to the low and this bond – the SGD 30Y moves 0.2 cts per 0.01% move in the yield for your information. That means if interest rates move up 0.25%, you will be 5% out of the money just so you know your risk.
Hi Tradehaven, thank you for your kind analysis and insights. I will carefully weigh the risk again. I was kind of keen to invest in the 30Y SGD bond at first because it seems to have fell to par value and I thought that is probably the lowest it can go since it has really perfect credit rating. I am not looking for really high yield but looking for something that is really safe and with interest better than the miserable interest offered by the bank deposits. Even if it cannot cancel out the corrosion effects due to inflation totally, I hope it can slow down the erosion. Eg. Inflation is 4.9% from figures just released, so if the price of the 30Y bond dont fall any further, I will lose 4.9-2.75% = 2.15% due to inflation. Its pretty bad but at least better than losing 4.9%. And another thing is cos its traded in SGX to public, prices are more transparent and brokage not so high. That was what I thought at first but I think some of my assumptions are quite wrong.
Would really appreciate if you have any advise on any relatively safe investments that can reduce losses due to inflation. I was thinking of Reits too. Not sure if its safe to go in at this point of time too. Or does Reits price fall when interest rate rise too?
Thank you so much and have a lovely Tuesday ahead.
Hey Oldfolk
Tricky to ask me.
I feel we are in a period of heightened uncertainty at the moment.
Cannot really comment on sgs or reits because I do not have a strong opinion myself and am just sitting this out until I get some clarity of thought.
And Reits do not fall when interest rates rise if the expectation is for rentals to rise. So it depends.
Will keep you posted.
Best regards
Hi Oldham, try to avoid SGS bonds at this point. I could remember that a couple of years ago, SGS 3.25% 15yrs bonds got hit with higher global interest threat. Then it was trading almost 91/92.
Just imagine if it is 2.75% & for a super long duration of 30yrs. S&P “AAA” rating looked totally irrelevant then.
Haha. Just saw this. It felt really bad then. If only we knew what was to come after 5 years.
Hi many thanks to tradehaven and Jim for their kind insights, really appreicated it. Will miss the Bond in conversation updates and any Olam bond price updates for a fortnight. May I wish Tradehaven a truely enjoyable holiday ahead. Will look out for your the new post and updates. 🙂
Btw Jim, do you happen to buy Reits? Any Reits in particular you think may be good to go in now? Hope to share your thoughts on Reits if you have. Thank you.
Hi Oldham,
Apologies.I can’t assist much on reits since I’ve only very little reits position like 10 lots Suntec since IPO.
Hi Jim thanks for your msg. No problem and many thanks for sharing your thoughts again. Do let me know if you happen to know of other good capital preservation method too. Have a fruitful day ahead.
Hi Tradehaven,
One thing is really perplexing me. In fact it is bugging me. When you have time Tradehaven, I would really appreciate your views. It is regarding the difference in price between retail bonds and the bonds traded thru our wonderful banks in S$ 250,000 nominal chunks (“Private Banking Bonds”).
Allow me to illustrate with two examples…………..
i) DBS 4.7%’s Perpetual with a 2020 call date – the retail tranche currently trades at ~ S$ 108.5, the Private Banking tranche at ~ S$ 104.1,
ii) Genting 5.1/8’s Perpetual – the retail tranche now trades at ~ S$ 105.9, Private Banking tranche ~ S$ 98.5.
In both examples the coupon is the same, both pay semi-annual dividends (although not on exactly the same date) etc. etc.
I realise that the retail tranches trade on a dirty basis, the Private Banking tranches on a clean basis but that goes nowhere near explaining the disparity in prices – the difference in the Genting perpetual example is particularly marked (~ 740 basis points, of which max. ~ 235 bp’s can be explained by the clean vs. dirty trading basis??!!). I am sure there will be other examples.
There is an example I know of, of a bond where the PB tranche closely tracks the price of the retail tranche, i.e. Hyflux 6% Preference Shares (perpetual, but with a decent step-up in 2018) – unusually dividends are cumulative and both the retail and PB tranches trade on a dirty basis – but is that really the reason why the retail and PB tranches seem to be much more closely aligned than the cases of the Genting and DBS Perpetuals?? Is it down to liquidity differences?
Why am I bugged by this? Because I have some DBS 4.7%’s, Genting 5.1/8’s (and Hyflux 6.0’s) and…………… alas, not the retail tranches!
Cheers
Hi JC
The Genting is tricky. They are different tranches and not fungible.
The retail tranche is a completely separate issue for SGD 500 mio while the wholesale tranche, whilst it has the same coupon, was for SGD 1.3bio and has a different call date and features.
The Hyflux is the same bond and is fungible ie. retail and wholesale are the same, thus any difference will be arbitraged.
As for the DBS, I suspect it does not trade much and because retail has less access to bonds, they are probably willing to pay up for these few retail issues.
You are lucky to be able to access both markets and be able to arbitrage prices in times when discrepancies arise.
Hope it helps.
Just a thought – or rather: a possible analogy – regarding the comment made earlier today vis-a-vis the S$ 30-year bond and specifically a stated perception that Par may be a “floor” …………….
When I was a much younger man than I am today, my late Grandad once had a chat with me about British War Bonds/Loans. These were loans taken out by the British Government in order to pay for their numerous war efforts during the 20th century. One such Government war loan paid 3.5% p.a. – it was a “perpetual”, in sterling, which the Government of Neville Chamberlain had, in the early thirties if my historical recollection serves me correctly, rather naughtily converted from a 5% p.a. fixed term bond (Cyprus has nothing on this wobbler from the British Government!). You can still buy this debt paper today, if you are so inclined; they have quite a following.
My Grandad – a soldier who had fought in WWII – patriotically bought into these 3.5% War loans, believing them to be a robustly safe place to invest – he bought into them during the post-WWII period when inflation rates were low, believing that par would be the “norm value”. He kept them until his passing……. but the reality is that due to inflation rates that he would never and could never have foreseen before he passed, the price of these bonds traded below par for over 70 years! At one point during the high inflation days of the seventies, the price had fallen to below 30 pence on the pound.
A Grandfather was trying to advise his Grandson not to do what he had done.
To my simple mind ……………
1. While ~ 3% p.a. in Singapore Government Debt may seem solid…….. a lot can happen before 2042.
2. Par is the price at which S$ Government debt paper is issued and redeemed. Nothing more.
Just a thought. Trying not-to-preach.
I miss my Grandad.
Happy Easter everyone.
Hi JC
Amazing that we know someone who has those 100 year bonds. I miss my granddad too. He was a dividends man.
My intuition tells me that people have it too good and have grown lull in the current interest rate regime that is virtually non existent and now used for political means and economic numbers such as inflation will only be half truths from now.
I have seen a few bond crashes in my time and they are not pretty. 5% off a bond price can be wiped out in a day and it is not even a case of default.
Unless we have a massive erosion in investor confidence, I suspect we will drag on in this painful path of a stagnating and slow recovery.
Don’t ask me why stocks are running ahead of themselves ? Yet Japanese households are wealthier for the sake of it. But does it matter that JPY has fallen 10% on the year ?
Happy Full Moon !