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.