Bonds In Conversation : How Low Is Low ? Taking Equilibrium For Granted

When you read that 7 year German yields are at 0.70%, you start to appreciate Singapore interest rates a little more.

It happened before in 1H last year when German yields were tested on their downside during the Cyprus crisis and a few other times before that.

The difference this year, is that the rest of the world has gravitated to, more or less, the same yield levels in a hideous equilibrium.

I prepared a table of 10 year bond yields which could be considered the risk free borrowing rate of the country.


With the exception of the UK, NZ and US, the rest of the developed world has witnessed a drop in their 10 year bond yields or their country’s borrowing costs. The noticeable ones would be Greece, Spain, Italy, Ireland and Portugal, the former untouchable PIIGS.

The developing countries do not have it as good with not a single one of the BRICS – Brazil, Russia, India, China and South Africa, spared from higher interest rates.

And thus the start of a new wave of EM investments or rather, carry trades, as I note from the various strategy pieces that have come my way.

The borrowing spree continues with European company debt now higher than ever.
“The ratio of debt to company earnings, or “leverage multiples”, for all European transactions were 5.1 times earnings in the first quarter of 2014, above the 10-year average (4.8 times) for the first time since 2008.”

Yet the problem has been transferred off banks to the man on the street as noted in one of the most read Bloomberg articles this week, Bond Market Has $900 Billion Mom-and-Pop Problem When Rates Rise.

In a market that is pretty much detached from fundamentals, we cannot expect status quo or equilibrium to be maintained any more than for example, the US Dept of Commerce to give a proper estimate of the US Q1 GDP numbers or even for some countries like Turkey to stop faking theirs (which was a good strategy with no material impact on Turkish markets).

More Skeletons in the Fraud Closet….

Dark Pool Greed Drove Barclays to Lie to Clients, N.Y. Says

China (in addition to the alumina scandal rocking Qingdao port)
Up To $80 Billion Gold-Backed Loans Are Falsified, Chinese Auditor Warns

That really leaves no time for investors to read the fine print and the warnings coming from central banks even as the Bank of England warns of the risks over buying Cocos and that investors are “underestimating the probability” that the instruments will be required to absorb losses.

investors are ‘underestimating the probability’ that the instruments will be required to absorb losses – See more at:
Chinese companies are coming out in force with the first bonds to feature a “cross border guarantee” from an onshore company in China, issued out of Greenland Global Investment (Baa3/BBB- Moodys/Fitch) for USD 1 bio in 5 and 10 year tranches.
Singapore saw 2 good old familiar names coming out after Koh Brothers 3.5 year bond success. Tiong Seng Holdings and Tan Chong International issued 3.5 year and 2.5 year papers respectively, for an immediate rally in their prices.
There is a huge temptation to sleep it off in this low volatility environment that sends signals of relative calm and totalitarian control out of the central banks.
The biggest risk of all would be to take this fragile status quo for granted.
Leaving you with the prices.
USD Bonds Listed in SGX and HK
2014 SGD Bonds
2013 SGD Bonds