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.
Reasons
- 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.
Hi, you leverage caught my attention, I read about it but did not actual do it, are we about able to get loan at such a low interest rate on this kind of leverage?
Thanks, Ed
Hi Ed,
Depends on who you bank with. Most private banks and some of the brokerages offer loans against your portfolio and HDB bonds should qualify for a decent leverage ratio.
The illustrated borrowing rate I used of 1.25% is based on the 3m SOR which is a low 0.22118% today and I assume the 1.25% rate. I am unsure what the average going rate is which depends on the individual’s capacity although I am aware that some customers do actually get away with very decent rates.
Hope the information helps.
Best Rgds
You can easily get 1.5% by pledging your portfolio if you are premier or priority customer. Probably less if you a PB customer. However, the rate is NOT fixed.