Bonds In Conversation : Bonds & Capital Preservation
25 Jul
Cost of Buying Credit Protection
Asia Invt Grades 1.40-1.43% (+8)
Korea 5yr 0.85-0.89% (+5)
China 5yr 1.08-1.12% (+8)
Philippines 5yr 1.11-1.20% (+9)
Thailand 5yr 1.06-1.16% (+12)
Indonesia 5yr 2.04-2.14% (+10)
Malaysia 5yr 1.05-1.15% (+8)
Vietnam 5yr 2.35-2.55% (+10)
Widening back out overnight after tightening back last week. Makes us look like champs for getting our housing loans at SIBOR +0.70%.
Indonesia and India lead in the stress tables even after their rate hikes, the rupiah losing 2.31% on the week.
Singapore market exuberantly launching 2 Reits and a couple of local corporate bonds and showing all signs of being yield hungry again despite warnings of over leveraging in the population.
It is a tug of war between investing to beat inflation and investing for capital preservation. Bonds may not necessarily be the answer and the investors of Tata Steel 4.95% 10Y SGD (price 87.25/88.25) can tell you that with their papers losing them 12% so far in the past 2 months (The bond was only launched end April !) There was certainly a reason why they chose to issue in Singapore.
But lesson obviously not learnt ! Banyan Tree 5Y saw overwhelming demand even as HDB priced their most expensive 3Y since 2010 at 1.165% which is better than a lot of term deposit rates.
My theory is that Singapore investors are perhaps too yield hungry and issuance this year has been well below the run rate of last year resulting in a lack of supply (YTD issuance SGD 11 bio compared to SGD 31 bio for the entire 2012).
I am getting increasingly bothered by the impression that some people have, that bonds of any kind are safety nets during a recession. Because the reality could not be further from the truth.
I leave you with what I call the “estimated” prices (because I cannot claim they are live). Am working on a new format with bid-ask columns for next week.
2013 Issues – 2 bonds are sub 90 cts, namely, Tata Steel and Unicredit.
And 2012 Issues.
Hi Tradehaven,
Why are people subscribing to 2nd or 3rd tier bond and not buying older quality bond that gives a better yield with the lower price now?
Generally prices are lower now when compare a week again, will the bleeding continue as the hot money flows out of the region?
Thanks and best regards,
Hi Sam
Good questions.
1. older bonds not so readily available and inventory varies from bank to bank and most banks do not have much limits to hold a lot of inventory
2. price is not transparent – recently I came across this secondary bond offering sheet offered by one of the private banks and noticed that prices were marked up by ALOT (even a fool will not buy) ! while bids are non existent…
3. Spore is a large financial centre with a growing base of family offices and trusts – their allocation to SGD depends on the outlook for the currency and trend with global flows that normal retail investors are not too attuned to. The current trend is still Rotation into equity and US/Japan and the UK appear to be the favoured destination.
4. Hot money does not buy SGD corps because SGD corps are very illiquid by global standards, they will park in short dated instruments like tbills, SGS and even equity.
My 2 cents worth !
I believe one of the reasons of the existence of this blog is to allow us to discover the gems, if any, and not being led by the PB to believe what are the best available to invest. For this, my sincere appreciation goes out to Tradehaven!
Haha. Thanks for your support and encouragement !
Any views on Cheung Kong Holdings 5.125% perpetual? Pricing is around 92 – 94.
blanket rule.. avoid perps with no reset for me..