Bonds In Conversation : The Day The Music Died (Updated)


I have a personal signal for market distress.

2nd hand Lamborghinis for sale. In the recent month, we have seen the listings jump a few fold. Someone told me long ago that Lamborghinis are usually more elastic while Ferraris not so. That means, more susceptible to market forces. I do not know the basis for this, perhaps Lambos being the 2nd cousins to Ferraris could represent a nouveau riche sort of symbol ?

A personal warning on buying distressed assets, like during the crisis I was offered a house in the east part of Singapore for 2 mio under the valuation. There is something in bankruptcy laws that would work against the buyers if the asset was purchased 5 years ? (I think) before bankruptcy.

Looking at the sea of red today, yesterday and the day before,  I do not think it is worth even thinking about what happened in the past week. The plug hole has been opened and we are seeing a little correction after a long wait.

Asia Credit Protection Levels for 5 year

22-Aug 16-Aug
Korea 5y 0.90-0.95% 0.78-0.83%
China 5yr 1.18-1.23% 1.01-1.06%
Philippines  5yr 1.50-1.60% 1.20-1.26%
Thailand  5yr 1.53-1.63% 1.16-1.22%
Indonesia 5yr 2.90-3.10% 2.25-2.40%
Malaysia 5yr 1.57-1.67% 1.18-1.24%
Vietnam 5yr 3.00-3.30% 2.60-2.80%

Gapped out in the past week.

I would like to highlight that some names in Singapore have not factored in the extent of their international credit move, for instance, the Indian names which have widened considerably (by >1%) in the past fortnight.

Exit Planning

Finally, big news has an article albeit a little late about the state of liquidity in the bond markets, a pet peeve of mine for the past 5 years ! Where are the bids ?

When I noticed that the bank I deal with shut down their SGD bond platform, I was slightly alarmed and mentioned it to readers some weeks back. The market remains unusually calm which is a good sign because no one is buying so no one can sell.

”     Aug. 21 (Bloomberg) — The lowest volumes for U.S.
corporate-bond trading since 2008 are underscoring the potential
for market disruptions as regulations prompt dealers to retreat.

Exiting from fixed-income securities is getting tougher as
the world’s biggest bond dealers respond to new capital
standards, reducing inventories of the debt by 76 percent since
the peak in 2007. Even as lenders from Goldman Sachs Group Inc.”

”     Investors are souring on the debt after pouring almost $950
billion into corporate-bond mutual and exchange-traded funds in
the wake of Lehman Brothers Holdings Inc.’s collapse in 2008,
when the Fed started expanding its balance sheet to suppress
borrowing costs, Citigroup data show.
The unprecedented growth of funds that publish market
prices of their assets daily has changed the dynamic of credit
markets, with investors more inclined to redeem funds as
sentiment deteriorates, Antczak said. The funds now account for
more than 40 percent of the debt’s owners from about 25 percent
in 2007, Citigroup data show.
While the biggest banks used to provide a cushion from
plunging debt values, they’re less willing to fill that role
after the 27-country Basel Committee on Banking Supervision
raised minimum capital standards, boosting the cost of owning
riskier assets.”

So the banks have been happily unloading high risk stuff over the years and folks have been happily lapping up the yields because banks do not need deposits when they have QE monies.

Now we see screens of prices but all untouchable and inaccessible which means they are Artificial ? But that is what OTC is about. And that is the main reason why retail bonds disappeared.

This is not to say all is lost. I hope none of my readers will have to sell anything on distress. I would encourage us to stick together through this and alert each other on prices and sale opportunities so we can help each other out. Readers can use the forum pages to post any information they come across to share. Big thanks in advance !

Lastly, our directory should be up in a fortnight. What an amazing relief when it can be done in Singapore for less than a month after being held up in the Philippines for a year. And somehow our COMMENTS field does not work today. Is there a reason for the EM crisis ? Yes !

Leaving you with the prices (all unverified and probably unreliable). New Nam Cheong is going 99.75/100.25.