Bonds In Conversation : Rejoice, Revel & Reap The ShutDown
Caveat emptor : Non Americans only
The shut down has been good for the rest of the world. Equities and credit markets are holding more than steady. Bonds are outperforming, even high yields are holding up. It is an unbelievable lull we have and we don’t have to even worry about the Non Farm Payrolls tomorrow because the numbers are not coming out !
I will not give my views about the matter except that I will not be so quick to take sides. A boss is supposed to manage a company and a president is supposed to run a country. For the GOP to be staking their careers on this (popular press has it that Obama’s popularity is soaring), it feels a little kamikaze to me and there is something noble about that.
Lets be circumspect. The Taper is officially Dead with this shutdown, regardless of the extent of its economic impact. Corporates, which have not shut down, will have a chance to blame the 2nd worst quarter of earnings warnings since 2001 on this whole taper and shutdown business. All the EM crisis and ADB growth cuts on developing Asia now have escape clauses.
http://mobilebeta.reuters.com/us-third-quarter-earnings-warning-ratio-is-2nd
Almost too good to be true ? Yes. Better believe it and seize the day.
Some months back, we had Wallstreet’s brightest and smartest selling out. The head of Blackstone Group’s private equity just came out to say that we are in the midst of an epic credit bubble unlike he has ever seen and nothing lasts forever.
That is a chilling revelation that we should all take with us. Because he sees that the “largesse goes to the sellers” of companies even as easy credit benefits the buyers.
Why do I say that when Singapore has just seen a plethora of bond issues out of some interesting little companies out there ? The latest being Centurion Group coming at 5.25% for 3Y and trading at 100.50-100.70 today.
Because I just came across another interesting company placing out shares for some mining assets in some far flung part of the world. The owner had acquired the land for just under USD 10 million but the shares are going for about USD 160 million. That is Largesse for us … Oops, sorry, I mean him.
Leaving you with the prices (all unverified).
Notice that most of the smaller obscure names are quite devoid of liquidity these days.
Even newly launched issues.
Nice….
04-10-2013 14:17:13
Singapore becomes a destination for junk
* High-yield issuance hit record in 2013
* Southeast Asian companies bet on demand for high coupons
* Private banking fuels search for returns
By Kit Yin Boey
Oct 4 (IFR) – Companies in Southeast Asia are looking at Singapore as a viable alternative for high-yield bond issues in amounts that would be too small for dollar investors.
The push comes as so-called junk bonds became a predominant theme this year in the Singapore market, with a record number of small-cap and sub-investment grade companies selling debt in the Lion City, attracting investor interest by offering juicy coupons.
Data from Thomson Reuters showed that close to S$5bn (US$4.02bn) of high-yield deals were done to date this year, compared with an estimated S$4.4bn and S$3bn in 2012 and 2011. Many of these deals were for amounts smaller than US$100m, too small for the dollar market.
This has attracted companies such as unrated Indonesian conglomerate Rajawali Group, which this week started a series of roadshows in the island republic for a potential Reg S deal.
At the same time, Indofood Agri Resources announced its plans to diversify into the Singapore market via a new S$500m MTN programme. There were also rumors of Indian and lower-rated Thai companies looking at coming to Singapore with bonds.
YIELD HUNGER
The issuers are being attracted by the ability to print bonds at lower coupons than they would get in their home markets, which in some cases do not even have investors that buy
high-yield at all.
Meanwhile, in Singapore, last year, investors became renowned for embracing perpetual securities and for chasing yields. And with most of them focused on holding on to the
bonds, secondary prices very seldom fall below par.
This has helped Singapore become a consistent source of funds for issuers in the region, being available even at times when the US dollar market was tight.
In 2011, a record US$6.2bn of local currency bonds were printed in the city-state just as dollar markets froze amid the European crisis and the downgrade of the United States.
The swelling appetite from private bank is partly to blame. Various research reports estimated that the combined wealth of high-net worth individuals in the country held US$857bn in
assets in 2012.
STEADY NOW
But a recent foray by Perisai Petroleum suggests that even yield-hungry Singapore investors may draw the line at some point.
The Malaysian high-yield company raised only S$23m of three-year bonds despite the backing of three joint leads and two co-leads, and a generous yield of 6.875%.
The transaction served as notice that even private bank clients, who had thrown money at any high-yielding name last year, are now hesitant about taking on unknown foreign issuers.
Rattled by indications from the Federal Reserve in May that its board could halt monetary easing policies, local investors started pulling back and increased their target yield levels to
cushion expected rate increases in the future.
Syndicate desks report that private bank clients are balking at taking on more risk exposure, and that less leverage is being given to them, although no lines have been pulled.
Institutional investors have also been wary and a number of Singapore dollar bonds have recently traded below par, albeit to a lesser extent than US dollar ones.
Bankers think that the market, however, remains reliable, noticing that there is still demand for recognizable names.
“Foreign names come to Singapore because they know it is a viable and accessible market,” said a syndicate head of a foreign bank. “The Singapore bond market is still substantial,
and getting along quite healthily despite the last few months of volatility.”
(Reporting By Kit Yin Boey; editing by Christopher Langner)
((kityin.boey@thomsonreuters.com))
The justification is this and it comes from many an investor that I have met. The sales pitch is that if you dont have the money to hold till maturity, you are not in the buyers league.
So there. hold on yo your pride and your wealth.
Meanwhile, right after issuance, bank bids dry up.
You want to be able to boast to your friends or not ??
Hi tradehaven,
Thank you for all these efforts to post the weekly bond list again. May I ask, if US were to really default on its debt, how will it probably affect us? I don’t really hold any USD or US govt bonds. I supposed if it defaults, the sg stock market will plunge, but will what be the effect on SG govt bond and Sg Corporate bonds like those in the bond list above? Am I right to suppose gold price will rise and USD will plunge should US govt default? I am wondering if it will have any effect on the interest rate too.
Thank you so much again and have a great Sunday ahead!
It makes sense to assume, for the time being, that any default would be but a technical one. Meaning that it is temporary. We have all grown too accustomed to the idea that governments are too TOO BIG TO FAIL, even little ones like Cyprus. Thus a solution should be expected.
Plenty of reports out there on what to expect based on past close calls with debt ceiling.
1. Gold will rise then fall
2. Stocks will rise and rise
The effect on interest rates for the past week is that short term US 1mth tbills have sold off which will probably escalate into the >1mth tenors on fears of a liquidity crunch and mass exodus from US investments. But we are not seeing much impact on equities and other instruments at the moment.
In a worst case scenario, we will have flight to quality in the SGD space as usual if stock markets take a tumble. The bigger picture would be the worry that growth would be derailed which is good for bonds… and stocks (more QE) and real estate (lower rates).
Hi tradehaven, thanks for your kind information and insight. I will read up more on it. Hope things will be fine soon. Do kindly share with us your insight if you do forsee any steps that someone holding SGD corp bond should do. Thank you so much.
Btw I have a small suggestion. If it is not too inconvenient for you, is there any possiblity of having an additional ‘perpetual OTC bond list’ in addition to the 2012 and 2013 issues? Cos there are a few OTC perpetuals that were listed in earlier years which I think are pretty popular eg. DBS 5.75%, Maybank 6%, Hyflux 6%, OCBC Capital 5.1%, DBS 4.7%.
Thank you so much and have a great trading week ahead.
Last Friday, I’m getting buy quotes for UOB 4.9% & DBS 4.7% at $103.70 & $102.70 respectively – looks expensive by recent standard.
Are the bid-ask prices just widening? or are the bonds prices really moving up due to general market sentiment?