Bonds In Conversation : We, Not Stupid In Summertime

I end the week with a somewhat fractured view and a profound sense of realisation of the role of the retail investor in bond space.

The retail segment is not as fragmented as we like to think and functions as a collective gestalt which is evidenced in the market flows after Thursday morning’s FOMC where markets took about a day to dismiss the dovish event led by retail outflows in the bond ETF and bond space.

The retail flow is a powerful flow because it is not hedged which means when they sell bonds, banks would have to hedge the positions by paying interest rates or selling other bonds causing interest rates to rise further, much like mortgage convexity trades in the US.

The FOMC took centrestage this week in what was hailed as an ultra dovish stance, almost rivaling the ECB’s negative interest rates threat leading to the S&P 500 to close the week for its 21st record high for just this year and 82 weeks of continuous rally.

Best performer this week – Silver +6.2% and Gold +3.1%, both inflation trades and good bets for geopolitical risks.

The biggest bond market news is a story out of the FT which was unverified by Yellen in her Q&A session on Thursday, that the regulators are considering imposing exit fees on investors of bond funds to avert potential runs. Does that mean you can buy but cannot sell ?

Yet smart folks – the retail folks  will have none of the bond story much more when Iraqi USD bonds maturing in 14 years are only giving 7.51%, falling from 6.35% just less than a fortnight ago. Are we trading US govt endorsement risk ?

Everywhere in Asia, junk bond popularity is now tied to associations with blue chips, governments and degree of sovereign wealth fund ownership.

Salesfolks are still yapping BUY when junk spreads are tightest since Jul 2007 at just 3.4% (last peak 11.4% in 2011).

Total debt in US hits a record high of US 60 trillionand Chinese corporate debt overtakes the US according to the S&P.

Investors seen selling in most reports I read which includes the first outflow from bond funds in 15 weeks and carry and risk trades back in vogue into India and Indonesia.

Credit Highlights

Noble sprung a nasty surprise to bond investors of its 8.5% perpetual by triggering a 100 call and replacing with a lower yielding 6% new issue that is trading at 100.5/100.9 presently (unverified source).

Indian banks came under scrutiny in a Moodys report highlighting their over exposure to the troubled power sector while Citic managed to raise new money despite the investigations at Citic Resources into their missing collateral in Qingdao, China.

Singapore saw only 1 new issue in an extremely lull fortnight, a small SGD 50 mio 5 year 4.8% issue out of Koh Brothers, a household name in construction. The bond has promptly rallied to 100.90/101.50 within 2 days which is, in my opinion, not a credit story.

It is officially midsummer, the Summer Solstice, tomorrow the 21st of June. A change in season for the globe and a much needed pause into the half year end.

Enjoy your weekend.

USD Bonds Listed in SGX and HK


SGD 2014 Issues


SGD 2013 Issues