Bonds In Conversation : Short Term Pain, Long Term Gain

I met two chaps this week in my infrequent forays out from home and outside the school run routine, who both have substantial cash on the side.

They are cashed up which sounds like a happy problem for cash strapped me and yet, being cashed up is a worry for them and they are looking for bonds to buy. I suppose there is no pleasing everybody but for all the goodness in my heart, I could not suggest much in return for the free beers and coffee that I received.

10Y US bond yields have hit a dead space. 2.5%  is the key support line for 10Y US bond yields, which is where we are at now and everyone is on tenterhooks.

10Y UST SUPPORT

Well, if no one would listen to little old me, then at least listen to the richest fund hedge manager in the world, David Tepper who earned US $ 400,000 per hour he breathed last year for a total of US $3.5 billion in wages.

““We have this term called coordinated complacency to describe the world’s central banks right now,” Tepper said yesterday at the SkyBridge Alternatives Conference in Las Vegas. “The market is kind of dangerous in a way.”… while investors can be optimistic on markets, they should hold some cash.
“I think it’s nervous time” he said, adding that markets may “grind higher” in the near term.”
http://www.bloomberg.com/news/2014-05-15/tepper-says-he-s-nervous-about-markets-as-fed-complacent.html

It is nervous time because Volatility is Dead. https://tradehaven.net/market/fx/it-always-rains-when-the-car-is-washed-volatility-and-hedging-your-portfolio/

You know why your banker is selling you more bonds than anything else ?

Because none of their structured products and notes (which gives them bigger margins) works right now, paying such poor returns that actually makes a bond look good.

Bonds are flooding the marketplace with the busiest April ever and total investment grade issuance so far this year within 20% of 2014 full year forecasts, according to Soc Gen.

And bonds are being issued for sometimes wrong reasons these days as “as U.S. companies from Booz Allen Hamilton Holding Corp. to Verizon Communications Inc. raise debt to finance shareholder payouts and takeovers.” http://www.businessweek.com/news/2014-05-13/blackrock-joins-pimco-hiding-from-animal-spirits-credit-markets

The sharp drop in US yields coinciding with a historic high in the S&P 500 index largely ignored the fact that the Russell small cap stock index is at its year’s lows and took the attention away from China, allowing bonds to make a come back.

Indian election euphoria is giving Indian stocks and the INR currency a massive boost today ! Ignoring the little pockets of unrest slowly erupting. Thailand and Vietnam also in states of unease and tension which is ok for investors as long as they are far away from it. https://tradehaven.net/market/fx/dont-forget-the-election-hangover-and-post-vesak-violence/

Singapore had a decent week of issuance led by UOB’s SGD 500 mio Basel III compliant Tier 2 issue in SGD priced at 3.5% (vs 3.75% initial coupon). It was followed by 2 high yielding issues out of Vallianz for 2.5 years and Central China Real Estate for a 3 year paper. (I personally think that the Country Garden issue in USD 5YNC3 looks better – trading at 99/99.25 today.)

Still don’t know what to make of it ?

Me too.

Leaving you with the prices.

USD Bonds Listed In Hong Kong and SGX

USD BONDS

2014 SGD Issues

SGD 2014 CORPORATE BONDS

2013 SGD Issues

SGD 2013  NEW ISSUES