Bonds In Conversation : What Can I Say ? Ice Bucket Challenge !
Stunned into silence in a remarkably surreal week that set some new records to rewire our mindsets.
First the Dow and the S&P records highs were expected but what was not is that the 10Y T-note rallied on to its current 2.34%, a 1 year low.
Carry trades all back in vogue from the Turkish lira to the Australian dollar with market blaming it squarely on Draghi’s comments last Friday at Jackson Hole, hyped into very dangerously high expectations of an ECB QE exercise that has to live up to expectations because German bunds are yielding negative up to 3 years.
Yet the carry game has not extended to junk this round and an amazing statistic has emerged out of Bloomberg.
* Investment grade debt are on pace to deliver annual returns of at least 10% – something that only happened twice in the past 17 years, and
* Investment grade debt has outperformed junk for the first time in 3 years, delivering 6.5% vs 5.8% that junk has gained for 2014.
What can we say in times like these ?
Buy and buy some more ? Of course not. That is irresponsible.
It is too early to pre-empt the ECB QE and this magnitude of pre-emption could possibly result in a BOJ type disappointment as we have seen last year.
But we are in the mood for ICE BUCKETS and there are actually people asking to be nominated to “ice bucket” themselves and donate at the same time because it would make a good boast as a conversation topic perhaps ?
So join the fray and donate to the ALS without really knowing what it is about. Pamela Anderson (yes, Baywatch) does, and she declined to take up the challenge because they indulge in the practice of vivisection and animal testing. http://www.people.com/article/pamela-anderson-ice-bucket-challenge
How about another disease ? Hydrocephalus which sounds as bad as Lou Gehrig disease. http://www.forbes.com/sites/robertpearl/2014/08/21/a-mothers-plea-to-save-her-child-from-a-neglected-disease/
The market mood is certainly jolly into month end. China is in revival as offshore investors poured more money into China ETFs than they have done in 2 years. http://www.bloomberg.com/news/2014-08-28/china-etf-drawing-most-funds-since-2012-on-stimulus-bets.html
This is even as the onshore mood is turning a bit sour with protests against real estate prices and failing trust companies.
India is also on a roll with inordinate flows onshore, all global funds driven, driving the NIFTY to a record high which is a tricky balancing act with inflation seen on the rebound and a court ruling against 16 years worth of coal mining licenses which should be negated by Modi’s promise for 75 million new bank accounts by January next year.
Well, the good news is that issuance has been light as we prepare, as I have been told, for a bumper September which is usually the last leg for most banks into year end. Asian G3 (ex Japan) bond issuance has broken records already according to Bloomberg data at US 98.8 bio year to date versus 93.3 bio for the whole of 2013.
In Singapore’s market space, we can prepare for some good quality stuff to come, noting the trend of the past 2 weeks where we are seeing a spate of GLC issues. I daresay these issuers are not regular and come in cycles from past observations.
This week’s Mapletree Greater China (aka MAGIC) deal was not as well received as I had expected probably because of its pricing and after last week’s gargantuan Capitaland 10Y for SGD 500 mio which has been the second largest corporate issuer this year after Stanchart’s SGD 700 mio sub debt deal in January.
Do note that we are at 14 month lows for our 10 year rates and risks are building into September for the European Central Bank to take over Fed’s QE job as the Fed’s taper concludes in October.
That is an ice bucket challenge I hesitate to take (yes, I am bearish bonds).
Leaving you with the prices and my vision of a mini ice bucket challenge which I took during my trip – whisky on real glacier ice !!
USD Bond Issues Listed in SGX and HK
SGD 2014 Issues
SGD 2013 Issues
Hi tradehaven, sorry to be bothering you. OCBC issued a perpetual 3.93% coupon in 2005 and is callable early 2015. It is trading around 101 now and there are two more coupon payments before the callable date.
It was stated that in the in the OCBC website that if it is not redeemed 20 March next year, dividend will be 3-months Singapore swap offer rate plus 1.85%.
May I seek your advise on this:
a) For OCBC credit rating, does it sound like a good deal for bond holders if the coupon is 3-month SOR plus 1.85%? Or it is a really lousy deal for bond holders and we can expect the price to trade well below par if it is not redeemed next year.
b) Will the coupon be fixed at a specific value: the 3-mth SOR + 1.85 based on the SOR on March 20 next year and the coupon be the same there onwards or the payment will fluctuate depending on the 3-mth SOR on the subsequent payment dates. So if SOR increase later they pay more in 2016 or 17 etc.
OCBC seemed a bit ‘short of money’ now so I was thinking maybe they wont redeem this perpetual cos they did not redeem the 4.2 perpetual also. I am wondering it is likely for the price to fall significantly if they don’t redeem it next year. I am holding quite a fair bit of the retail OCBC 3.93 all these while.
Many many thanks again. Have a fantastic Sunday!
Hey
a) 3M SOR + 1.85% is ok, I would suppose. Good comparison is the OCBC 4% perpetual callable in 01/2018. That bond is trading at 101.33 3.58% now which is about 2.3% above SOR.
b) Coupon will be refixed every 3 months. Fixing should be 2 days before the 20th.
OCBC will have an interest to redeem this one and the 4% one too because of Basel 3 capital rules and these count less towards capital than new loss sharing perps.
If they do not redeem, it is hard to say how the market will perceive it.
Hi tradehaven, many many thanks for your patience and kind explanation. I will take note of the valuable views you kindly highlighted and shared. I think maybe i’ll keep the 3.93 till next year and see if they redeem it. Cos if they redeem it or if they dont redeem but the secondary retail market value it around par next year march, the yield for the next 6mth i think is around 5% area. (2 coupon payment total 3.93% minus 1%++ =2.5% area after adjusting for commision for six months, which is about 5% pa).
Will certainly look out for news on these OCBC perpetual issues should here if and when OCBC announce any news on it about the redemption. Thank you so much once again and have a great tuesday ahead.
Hi may i ask does the new china tai ping insurance perp bond look like a good deal? Thanks