SINGAPORE BANK SUB DEBT CREDIT ALERT – BAD TIMING
Moody’s announces reviews for downgrade of three banks’ subdebt ratings in Singapore
“Moody’s highlights that the reviews of the banks’ subdebt ratings are not in any way related to any deterioration in the affected banks’ fundamental credit quality”
“The review takes place in the context of a methodology update that has changed the way Moody’s looks at the probability of support, which has led to several subdebt ratings in multiple banking systems being reviewed simultaneously.”
Do not be worried. They are all going down together.
*Moody’s announces reviews for downgrade of five banks’ subdebt ratings in Hong Kong
*Moody’s announces reviews for downgrade of eight banks’ subdebt ratings in Korea
*Moody’s announces reviews for downgrade of eight banks’ subdebt ratings in Australia
Who should it affect ?
Credit sensitive folks. Rating sensitive funds etc.
Bad Timing ?
Yes.
Indo and Philippines quite badly hit last week as the offshore pull outs hit.
HY Asian names saw some heavy selling for prices down 1-4 cts. Most sellers are hedge funds, traders and private banks. Even Investment Grade corporates quite ugly with yields up 0.25-0.45% as market remains on the edge and sellers outnumbered buyers.
Price Table.
| CPN | MATURITY | TODAY | 1WK AGO | |
| DBS Bank Ltd | 3.1 | 14-Feb-23 | 101.875 | 102.4 |
| DBS Bank Ltd | 3.3 | 21-Feb-22 | 102.35 | 102.95 |
| DBS Bank Ltd (RETAIL) | 4.7 | PERP | 104.75 | N/A |
| DBS Bank Ltd | 4.7 | PERP | 104.5 | 105.2 |
| DBS Capital Funding II Corp | 5.75 | PERP | 108.125 | 109.05 |
| DBS Bank Ltd | 4.47 | 15-Jul-21 | 106 | 106 |
| Oversea-Chinese Banking Corp Ltd | 4 | PERP | 100.5 | 101.43 |
| Oversea-Chinese Banking Corp Ltd | 5.6 | 27-Mar-19 | 103.375 | 103.375 |
| OCBC Capital Corp 2008 | 5.1 | PERP | 104.5 | 104.5 |
| Oversea-Chinese Banking Corp Ltd | 5.1 | PERP | 101.5 | 101.5 |
| United Overseas Bank Ltd | 3.15 | 11-Jul-22 | 102.375 | 102.75 |
| United Overseas Bank Ltd | 3.45 | 1-Apr-21 | 102.7935 | 103.46 |
| United Overseas Bank Ltd | 5.05 | PERP | 101.75 | 101.75 |
| United Overseas Bank Ltd | 4.1 | 3-Sep-19 | 102.75 | 102.625 |
Prices holding up. Changes mainly due to interest rate difference and a minor widening of spreads and OCBC 5.1% sub debt is trading at a negative yield to call at 101.50.
Moody’s rate the Sporean banks’ subdebt on avg 2 notches higher than S&P does. Now it is changing its methodology on rating Asian banks’ subdebt hence the rating reviews. Mkt is already valuing these subdebt at the lower of Moody’s and S&P’s rating. In other words, it is not Moody’s (higher) but S&P’s (lower) rating that counts.
A bond investor should only be concerned with two prices: the entry and exist prices which translate to yield to maturity. Buying a bond at premium price and redeeming at par upon maturity does not mean lose money as the investor will be compensated in higher coupon payment. Eg a one year bond with zero coupon offered at price 99.15 gives a 1% yield, ditto a bond with 2% coupon and a 101 price.
BUY, HOLD AND REDEEM
Retail investors like the coupon streams in between for it is much like divd income.