SGD New Issue Review : HDB 5Y 2.288%

ISSUER: Housing and Development Board
RATING: Unrated
FORMAT:  S274 & 275 and Reg S Bearer, Fixed Rate Notes (off Issuer’s S$32bn Multi-currency MTN Programme)
STATUS:  Fixed Rate, Senior Unsecured
ISSUE SIZE: S$500mm (with an option to upsize)
SETTLEMENT DATE:  19 September 2014
MATURITY DATE:    19 September 2019
COUPON DATES:     19 September and 19 March (First Pay: 19 March 2015)
ISSUE PRICE:  100.00
COUPON: 2.288% s/a, ACT/ACT, Following Business Day Convention
DETAILS:  S$250k x S$250k / MTN Prog / SGX-ST / Singapore Law

How to buy ?

5 year interest rates at 1 year high, currently at 1.88%.

5 year average of 5 year interest rate is 1.54% but the 5 year high for 5 year interest rates is 2.55%.

5y sgd irsChart : 5 year SGD interest rates over a 1 year period

2.288% is halfway there or as we would say in Singapore, not here or not there. Because CPF is 2.5% !!!!

Yet this would NOT BE the highest coupon for a HDB 5 year issue, which is incidentally their favourite tenor, in the past 4 years. An issue done about a year ago in Sep 2013 gave us a coupon of 2.365% for 5 years.

And this would also not be the widest credit spread we are seeing for HDB in the 5 years at its credit premium of about 0.41%.

To make it worse, 5 year government bonds are catching up on their yields, now returning 1.53%. Last year this time, we were looking at 0.95% which made the 2.365% HDB a steal at that time.

5y SGS yieldChart : 5 year SGD government bond yields

The last HDB 10 year 3.1% issue done in July is slightly under water as I type, at about 99.50/100.00.

I do not find it a compelling buy especially with a new 5 year government bond slated to be auctioned on the 26th of this month.