Bonds In Conversation : New Records, Then What ?

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It is month end and almost half year into 2014.

We have been good and as it turned out, most investors have missed out on the stock market’s rally to a new historic high.

Fortunately, investors have caught the bond market’s rally as 10Y T notes touched a 10 month low in yields.

Who were the stock buyers ? It’s been the stocks themselves !

Investors are left long cash after cashing out and been ploughing into bonds which has been good for the stocks/companies to raise cash to fund more buybacks !

What are we left with now ?

A smaller stock market and a very big bond market.

Taken from my piece written last month, The Fed’s Job Is Done – Inflated Our Way Out of Debt.

Global market cap is back to 2007 levels. Global Market Capitalisation

And the debt market which is estimated to be at USD 140 trillion these days.
global bond market in new issuesEven dear Bloomberg is starting to sound like a broken record with such headlines. “In the U.S. equity market, the worse a company’s finances, the better it’s doing. “

The case for bonds is stronger than ever because of the low inflation theme, the downside protection of central banks in case equities blow out, and there is no chance of default because it is easy to issue more debt to cover the old debt.

And there is nothing else left to buy except bonds as I have come to realise in the past weeks.

Setting new records are good because a rising tide lifts all boats. M&A premium prices benefit the entire industry even in Singapore with Goodpack being acquired, Singpost, CMA and Olam.

The rest of the companies are monetising as quickly as they can, spinning off new companies from their fold to capitalise on market demand.

While the economy and bond market is treading down the secular stagnation path of slow growth, there is no sign of it in the equity markets. The risk is that the rally is happening for the wrong reason, on a lack of supply than due to valuations.

Whilst I had expected the S&P to break to a new high before the month end, I now fear a correction coming for the bonds that have been dragged along in the rally which we may see in the coming weeks.

High yield names have performed well along with EM inflows but the mood remains nervous.

Because after you break a new record, then what ?


I wrote Strategy : Bonds For Secular Stagnation on Sunday but I did not expect the bonds to rally so hard this week. The long ends >10Y Singapore Government bonds are all up over 1% on the week with the curve flattening quite dramatically.

The sentiment in the local corporate bond scene has also been extremely bullish with Swiber setting a new record for consecutive monthly issues on tighter credit spreads.

This new record will allow the rest of Singapore companies to tap the market for cheap funding in the near term.

It was also a timely move with liberal leverage awarded for bond purchases these days and coinciding with Goodpack’s bond solicitation exercise for their 6 outstanding bond issues just announced today.  No other details are available yet.

The rest of the issues this week – Banyan Tree 5Y, Ezion 7Y NC 4 and Heeton 3Y also did well. Trikomsel, the highest yielding one at 7.875% for 3Y is floundering underwater.

Well done. It has been a fantastic, record breaking month indeed.

Leaving with the prices and a collage of sketches Dialastrategist did in her short break in Shanghai last weekend.

USD Bonds Listed in SGX and HK


2014 SGD Bonds


2013 SGD Bonds