Bonds In Conversation : Out Of Touch

07/03/2014 by

It is hard to begin even thinking about all the events of the week a heavy miasma of incredulous thoughts clouding my mind as to the seemingly unrelated developments that has served to propel the US stock market to all time highs and higher treasury yields.

Markets are gobbling up record new issuance in the US where close to US 50 bio hit the streets and we saw a record low coupon for a high yield European name at 2.25% for a 5 year Heidelberg Cement, according to Bond Vigilantes. Bernanke gave his first 45 min speech for a princely sum that exceeded his entire year’s pay check for 2013 in which he urged EM to prepare for the end of QE that is easier said than done with IMF reporting that 80% of EM govt debt is held by foreigners. http://blog-imfdirect.imf.org/2014/03/05/the-trillion-dollar-question-who-owns-emerging-market-government-debt/

Worrying trend in food prices which is threatening to escalate led by droughts in California and Brazil which gave our local Olam a boost on a potential shortage of cashews which I still have a pack left over from the lunar new year. Consequently, their bond prices are trending higher and huge demand for their perp again.

Coffee shops raising prices are now justified with Coffee hovering new 2 year high, and Sugar, not far behind too.

Olam Bond Prices

Issuer Name	Coupon	Maturity	Amt Issued(MM)	Curr	Bid Price	Ask Px
Olam International Ltd	6.75	29-Jan-18	750000000	USD	99.285	100.1	6.96%	6.71%
Olam International Ltd	6	25-Oct-22	500000000	SGD	92.2	93.25	7.23%	7.06%
Olam International Ltd	5.75	20-Sep-17	500000000	USD	97.55	98.46	6.54%	6.25%
Olam International Ltd	5.8	17-Jul-19	350000000	SGD	96	97.2	6.71%	6.43%
Olam International Ltd	7	PERP	275000000	SGD	92.5		9.96%
Olam International Ltd	6	10-Aug-18	250000000	SGD	99.9	100.9	6.03%	5.78%
Olam International Ltd	7.5	12-Aug-20	250000000	USD	100.25	100.5	7.45%	7.40%

Graph of Olam 6% 10/2022 bond price (unverified).

Very localised worries of Chinese debt default as Chaori officially defaults (at last) today.

“Shanghai Chaori Solar Energy Science & Technology Co. said it won’t be able to fully pay a coupon due
today on its March 2017 bonds.” http://www.businessweek.com/news/2014-03-06/zombies-spreading-shows-chaori-default-just-start-china-credit

Happy news on the Indian front as their election announcement got them an Indonesian like rally (Indonesian markets rallied on their own election announcement). https://tradehaven.net/market/fx/umami-in-india-elections-discussion-and-opportunities/

Here I am wondering if I am out of touch with things (which has nothing to do with this Out Of Touch speech made recently) until this Citi strategy piece pops up in my mailbox commenting that the situation is fragile because the majority of the market is complacently expecting too much. “the good performance depends strongly on the view that payrolls and the subsequent data will continue to be soft and the Fed will be very accommodating, even if tapering continues on track.” which means that Taper may come back to haunt us once the weather anomalies and Ukraine goes away.

Credit markets are largely resilient this week with EM Asia – India, Indonesia, Malay, Philippines, all tightening. I do not like it but majority wins, for now.

Singapore saw a reopening of Suntec Reit 3.35% 02/2020, a new SGD 55 mio Ezion 5.1% 6Y paper which has maxed out its borrowing for the moment (until they increase the MTN programme size) and a CWT 3Y at 4%.

I would like to congratulate Singapore for keeping the 6M SOR rate under 0.30% for almost 6 months now and it is not budging from between 0.27 to 0.29 for the entire year. Who needs Budget goodies ? This is the average Singaporean’s reward.

Good luck with the Non Farm Payrolls tonight. If its good, the rally goes on, if its bad, its the weather and the rally goes on.

Leaving you with the prices.

US Bonds listed in HK and SGX