Bonds In Conversation : Major Hangovers

A mighty week not many people will remember very much of, happening so quickly in a relentless rally that is part of the major hangover of Japan and Europe.

And until now there will be no clarity with new developments happening daily, like this morning’s Japan announcement of an Abe announcement next week which is seen as positive as an early election is speculated (good for stocks and the USDJPY).

I have noticed the big differences this time round with all these reflation easing measures out of Japan and Europe. Nothing is really inflating except for stocks and the USD.

This suggests that uncertainty still prevails as to the implications of the large scale liquidity injections and risk assets are not doing too well.

HYG, the high yield bond ETF closed the week lower, as is the same for EM currencies. Oil has not yet found a bottom even as Alibaba is en route to becoming the 6th largest company in the world and is looking for 8 billion from the bond markets. http://online.wsj.com/articles/alibaba-to-offer-unsecured-notes-to-refinance-some-of-its-debt-1415890968

 

This just appears that the markets are already condemning the ECB and the BoJ moves to failure and arbitraging their intervention in the “selected” assets whilst ignoring the rest as human attention span drops and nobody bothers to invest Buffet style anymore than they try to make a quick killing.

Conversations with fund managers and bankers have confidently assured me that they are more than prepared for this rout and that clients are waiting on the sides to swoop up assets on fire sale.

Fire sales like the sort that CDL are warning about.

“CITY Developments Ltd (CDL) executive chairman Kwek Leng Beng has warned that the current subdued state of the Singapore housing market particularly in the high-end segment, if it continues, could ignite fire sales.” http://www.businesstimes.com.sg/companies-markets/cdl-warns-of-fire-sales-in-high-end-market

It seems that we have a lot of cashed up companies in shipping, real estate, O&G and such, that have accumulated substantial war chests and waiting for the right time to pick up assets on the cheap.

Companies are trying their best to beef up cash positions in a hurry with $103 billion worth of investment grade debt priced in October.

And somewhere out there, there are companies who are over invested and over leveraged that are expected to go belly up in the coming months.

In Singapore, we have had a first case of bankruptcy in a Danish fuel oil trading firm. I would say that is only the first wave as the direct repercussion of lower prices. http://www.todayonline.com/business/more-lawsuits-filed-against-ow-bunkers-singapore-units

The rest of the oil supply chain remain at risk for the future. https://tradehaven.net/market/the-oil-story-continued-where-is-the-pain/

I am not entirely convinced and I feel that if there will be pain, this time round, the impact on the greater society will be larger than ever, with more retail investors involved, along with companies who have spread their eggs far and wide.

The segregation between the “loved” and “unloved” assets continue, as I had noticed last week and it is getting worse, albeit not yet out of hand as the liquidity in the “unloved” assets continues to trickle into nothing and unlucky investors are left stranded. https://tradehaven.net/market/bonds-in-conversation-to-separate-the-sheep-from-the-goats/

This explains the USD and the stock market rally that we have seen and will continue to see, exposing a structural crack in the financial system that will no doubt result in those cheap assets to come, as half the world is expecting.

Until then, I am not trying to make much sense out of all this and will not bother to. Not especially when markets are only watching the USDJPY and the next S&P hurdle.

Leaving you with the prices.

 

USD Asian Bond Prices (Indicative)

SGD 2014 Corporate Bonds (indicative)

SGD 2013 Corporate Bonds (indicative)