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.