Bonds In Conversation : Uninspired For Now

“Success is a lousy teacher. It makes smart people think they can’t lose.” ~ Bill Gates

Outflows continued from EM bond space, EM bond funds are observing outflows for 22 out of past the 23 weeks. It is nothing much to worry about because the quantum has not been excessive enough for decent headlines to ring the alarm bells.

What the professionals are thinking :

1. Credit to hold/rally for the short term as rates stay low
2. Looking to buy on dips
3. Prefer short maturities because expectations are for higher rates next year
4. Being selective in the new issuance market
5. Outflows from EM – CEEMEA and Latam
6. SGD and TWD to be funding currencies in Asia

The firm belief is that the Taper will not happen before Mar 2014 and Europe is suddenly looking shaky again, Eurozone’s harrowing week ended with an ECB rate cut and a France downgrade by S&P today. Central bankers from all over the world are now singing Dangerzone in unison and IMF just published a dire warning to France, Italy and Spain for the absence of banking reforms which threatens to send them into a Japan lost decade spiral.

Last night’s move caused some jitters in bond space with high yields hit even though sovereign names like Indonesia have been coming off for the week, along with Brazil, Turkey and South Africa, quickly giving up its easy gains from the debt ceiling debacle. Thailand, with the absence of a USD bond, widened in credit default space.

Comfort to be sought from PIMCO, whom despite debilitating outflows, have put on a 10 bio wager on North American investment grade credits to remain sound making them a fourth of total market exposure. (shivers down my spin as I am reminded of Paulson and his similar wager on gold last year)

In Singapore

2 main pieces of news without mentioning hacking.

First, we had HDB printing a 4 year paper at the widest spread we can all remember. At SOR+0.70% for 4 years when NUS is paying about -0.02% (they pay less than market rate). And I do not mean to embarass anyone, but CIMB Bank did a small 5 year issue of SGD 20 mio at SOR+0.70% too sometime in March this year and of course, we had

This only emphasises one thing to me. There is a Big Difference between Underwriting and Book Building for bonds and we can speculate that banks who underwrite will be tempted to consider their own pockets as opposed to the deals that they are paid to sell. Not intended to malign or defame anyone or any entity !

Second, we have the FNN bond hullabaloo. Hmmm, did I ever mention I like discount bonds over premium papers ? But this should not be a lesson for bond buying. It is a lesson in business ethos ? The cost is not astronomical, just  a mere SGD 20 mio or so ? from the pockets of a billion dollar company owned by a billionaire ?

Incidentally, DBS has decided to launch a tender for the wholesale tranche their own 4.7% NCPS. They have cleverly only decided to tender for less than half the outstanding amount. With the threat of a call back at 100, bond holders could be tripping over themselves to push the coupon level down, which will set a nice precedence for the next batch.

I am not terribly inspired this week and have been grappling with this idiot proof homeplug I bought 2 days ago without much success (succeeded in crashing the internet for over a day). Perhaps it has to do with being unsuccessful ? Because the fear of failure is greater ?

Leaving you with the prices, which may not mean anything next week, and an apology for the delay.

USD Asian Bonds


2012 SGD Bond Issues


And a little disconcerted by the glaring lack of prices for some issues.