A Trade Suggestion : HDB Bonds
It escaped my notice but I finally read something I wrote and a trade idea struck me.
Bond trade ideas do not come to me easily these days because,
1. I am not being paid to do this anymore
2. I do not want to risk being sued by someone acting on what I said and I am not supposed to dispense financial advice here because I am not sure I have done enough of those IBF modules (although age exempts you from a few of them)
So I read the Bonds : GSS Special and realise we have HDB 2.505 06/2024 at 3.68%. That is a 11 year paper for about 88.5 cts.
- You may not think it is much but it is above 10Y and 12Y SGS. HDB is a stat board and 70% of the population lives in one, even if the government has not explicitly guaranteed the solvency of their business.
- And the best part, the new government property loan measures do not apply to HDB Bonds so as far as I know, you can still get leverage of 70-80% on them. (Assume you fund at 1.25%, on 80% leverage that is a yield of >10%)
- Now you add that piece of information and compare it to another post I wrote Mixed Feelings About Reits and Reits Bonds and throw in the table I put in my SGD Rates and Bonds Weekly on the lack of supply of SGS, I think we are missing out here.
- Banks will hold HDB bonds as a substitute to SGS as their reserve assets under Section 613 Subsection 4c. Link.
- Discount bonds are also my favorites because of my silly fetish for the convexity trade. You feel good because you pay less for a low coupon bond compared to a high coupon one at the same yield. 😉
- CPF pays the Ordinary Account 2.5% or the 10Y bond yield whichever the higher – 10Y bond is at about 2.62% today.
- Finally, the curve is screwed up ! The 10-12Y interest rate is about 0.26% apart ! 10Y at 2.625 and 12Y at 2.99% – that is quite a lot difference. Thus the HDB 2022 and 2024 are quite set apart in their respective yields.
And so I followed my instincts and hunted for some HDB bonds and true enough, not a lot of offers out there – which means they are keeping the good stuff for themselves ? and asking you to buy something else.
List as follows. (Prices unverified)
Some other GLC names to consider (notice I did not include NOL ? haha)
|KEPPEL LAND LTD 3.9% 07Nov24||130MM||3.9||7-Nov-24||94.00||4.46|
|SP POWERASSETS LTD 3.4% 19Sep32||250MM||AA-||Aa3 /*+||3.4||19-Sep-32||91.97||3.93|
|KEPPEL CORP LTD 4% 07Sep42||300MM||4||7-Sep-42||89.00||4.56|
|NTUC INCOME INSURANCE 3.65% 23Aug27||600MM||A+||3.65||23-Aug-27||100.50||3.49|
|HOUSING &DEVELOPMENT BRD 2.505% 27Jun24||585MM||2.505||27-Jun-24||89.44||3.57|
|KEPPEL LAND LTD 3.8% 08Jun22||200MM||3.8||8-Jun-22||96.50||4.14|
|KEPPEL CORP LTD 3.8% 23Apr27||300MM||3.8||23-Apr-27||98.50||3.87|
|SINGAPORE POST LIMITED 4.25% 29Sep49||350MM||A||4.25||29-Sep-49||99.50||4.21|
|KEPPEL CORP LTD 3.145% 14Feb22||400MM||3.145||14-Feb-22||98.00||3.31|
And good luck with the US Non Farm Payrolls tonight – make or break the world as we know it.