Bonds In Conversation : The New Hawk Is A Meek Goose

The US market saw the lowest weekly high yield issuance volume since Aug 2011 even as demand resurfaces with a $ 680 mio inflow last week which followed a record breaking $ 7.1 bio outflow the week before.

Meanwhile we will be sitting through a period of food deflation in Singapore as embargoed supplies flood the market place so get ready for some dirt cheap Salmon and olive oil ! And not forgetting the Fukushima rice that we will be getting in the mail

The week was all about the hawkish Fed minutes and, of course, about tonight (at about 10pm SG time) when Janet Yellen speaks at the Jackson Hole summit.

The market expectation is still for dovish comments out of Yellen which is giving both bonds and stocks the leg up while holding back the USD euphoria trade. And CNBC is right in suggesting that it is not for us to be ” judging whether policy is right or wrong, but working out what is likely”

You see, we have always viewed bonds and equities as competing asset classes which is a fallacy in this new age of QE and all forms of value analysis are flawed.

We have to delve into the realm of human psychology here and I would like to share an interesting read from Pritchard  in The Telegraph where Nobel laureate Prof Sims argues that the central banks have succeeded in instilling the mentality in most of us that we will be poorer in the future (deflationary) for all the QE that is happening now.

Even the most stalwart bears have backed down from their calls for a crash of bonds and stocks and Roubini is staying out of the headlines. Central bankers themselves are in conflict because they no longer sure about the outlook and hate to admit that it is bleak.

All this glumness only serves to make the new Hawk in town nothing but a mere Goose, if you ask me. It is Secular Complacency that has us all in thrall –

Other news of the week include an under publicised official default in China for Chaori Solar as creditors approved a restructuring plan.

Chinese banks continue to raise funds announcing intentions for more capital raising in Tier 1 securities after flooding the markets with Tier 2 debt last week as real estate markets in China slowed which is a big concern because real estate investments comprise 16% of China’s GDP.

Not much in terms of new Asian issues this week. Sentiments in credit continue to hold bullish even with real estate weakness in China. This I suppose is because mainstream media has not caught on yet – that China real estate bonds make up 34% of total Asian HY issuance.

Image taken from BondVigilantes :
China HY Debt

In Singapore, we had some nice issues this week in this insulated corner of the world that is planning for retirement in a large way. What better way to complement the Prime Minister’s speech than with tantalising new bond issues to remind investors of the need to bolster their legacies.

Warning signs remain as S&P ratings notes that nearly half of ALL RATED issuers are “Speculative” and a comment out of Stanchart on a vacuum created in the loan markets because issuers have all turned to bonds (sourgrapes ?).

“Aug. 21 (Bloomberg) — Loan volumes fell to equivalent of $693m in July, least since January, while bond sales rose to $2.4b, most since November, according to data compiled by Bloomberg.
“The fact that many midcap Singaporean companies have been able to secure bonds is creating a big supply vacuum in the loan market,” said Bryan Liew, Singapore-based head of Southeast Asia loan syndications at Standard Chartered
“There could be concern as to whether the bond investors actually do their homework in some of these new issuances, especially the new ones in the midcap”: Liew”

This observation is true in that loan markets are more stringent (takes several weeks for paperwork) and bond investors (especially retail) are undemanding on covenants such as today’s new Pacific Radiance issue which apparently does not have a change of control clause. We cannot blame retail investors because they are only given a window period of a few hours to decide if they want to subscribe and insufficient time (really) to do their due diligence.

I also note a funding spree out of Capitaland Group companies, Capitamalls, CapitaCommercial and Capitaland, all coming out to hit the market for bonds.

High grade stuff are hard to come by these days…..

Leaving you with the prices.

USD Bonds Listed In SGX and HK


2014 SGD Corps

2013 SGD Corps