Bonds In Conversation : Fund Manager Says Roller Coasters Start Slow

A bond portfolio manager told me that his analyst team who studies asset allocations and data series has detected red lightsred light and sell risk indicators.

Doesn’t this happen all the time ? Not when you are one of those unwieldy, gargantuan index mutual fund sort of monsters that change their portfolio compositions every half a decade with a 30 year time frame, and I will not elaborate further except that they do not think like us normal folks.

My reaction was that I cannot see a any room for failure just like I told my equity portfolio manager friend yesterday over lunch. There is always bail outs which makes it pointless to hedge like the market has realised, and vols are dirt cheap and a waste of time and money as far as markets are concerned after 5 years. (Incidentally, equity PM friend was asking about hedging which happens maybe once a decade for these happy, optimistic folks)

Mr 30-year-time-frame is a patient sort and reminded me that it took 18 months between the time HSBC USA’s warned on its American ops and Lehman’s ultimate collapse. Like a roller coaster, he said, the first stage is always slow before it accelerates and the Lehman moment occurred nearly a year after the equity markets topped in Oct 2007.

The best time, according to him, is to start trimming when vols are still low and, for him, his marginal dollar is going towards riskless assets.

Anyone following markets this week would know how worn out I feel after central banks mayhem. I have given up reading bank reports because they are chirping like headless chickens, especially the private banks, trying their best to drum up some flows and business. Read and weep and anyone who has read their USD strength story would have noticed that there is mostly silence until this morning when 1 or 2 stalwarts came out to re-bleat that theme (safe behind last night’s moves).

And I am not really interested in what everyone is doing or market data this week because I know most of them do not have a clue.

We had a light week of issuance in USD but heavy duty ones in the SGD market. We are seeing a resurgence of risk in EM and high yield issues. The local SGD market saw 2 issues out of Gallant and Rickmers that were well received along with an Australian name, G8 Education.

Another fund manager (which makes it look like I have been talking to a lot of people this week) pointed out to me that the Hong Kong market managed to pull one up over Singapore in terms of high yield issuance. They came up with a China Water Property 2.5 year senior paper complete with a keepwell clause (loose guarantee) from 855 HK (China Water Affairs Group) at 13% yield when the highest yielding bond in SGD is probably the Swiber perpetual followed by United Envirotech which came out at 7.25%.

I mentioned in a separate article, It Always Rains When The Car Is Washed – Volatility And Hedging Your Portfolio, that there has been a surge in bearish options on the US high yield ETF, HYG US, at a time when Junk-bond investors are accepting yields that are 0.74 percentage point lower than the earnings yield on the Standard & Poor’s 500 index.

And 18 months ago back in 2012, Singapore record bond year with SGD 31 bio issued, I said that shark attack victims feel no pain.

Genting 6% perpetual (Singapore’s largest ever bond issued in 2012) is at 97/98 (off its lows) if that is any consolation.

Because roller coasters start slow ahead of the wild ride and the STI peaked in May 2013.

Have a good weekend.

USD Bonds Listed in HK and SGX


SGD 2014 Issues


2013 SGD Issues