Bonds In Conversation : Bad Bonds, Bad Bonds, Whatcha Gonna Do ?
Whatcha gonna do ? Whatcha gonna do
When they come for you?
~ Bob Marley
https://www.youtube.com/watch?v=NG2ci9CyiwI&hl=en-GB&gl=SG
Karma beckons as we get more and more calls for bubble in credits, the latest now from the head of Sweden’s largest private equity firm. http://video.ft.com/3891633632001/Private-equity-warns-of-credit-bubble/latest
I am not sure if they are all being politically correct and afraid to offend the little guys in Asia, but most reports are still bullish on Asian and EM credits. An example in a report I read out of Bond Vigilantes below.
Taken from https://www.bondvigilantes.com/blog/2014/11/14/em-corporate-bonds-spreads-attractive-compared-developed-markets/?source=twitterAnd thus it is the latest fad and fashion to be lambasting credits and I have been doing more than my fair share of it this entire year.
The ingredients for the recipe of disaster (rehashed) :
1. Shrinking Margins
2. Size of Market and AUM
3. Bubble Warnings
4. Absence of Bond Traders
5. Volatility Is Back
as I had listed last month in my post : https://tradehaven.net/market/liquidity-crunch-time-for-your-bonds/
2. Size of Market and AUM
3. Bubble Warnings
4. Absence of Bond Traders
5. Volatility Is Back
as I had listed last month in my post : https://tradehaven.net/market/liquidity-crunch-time-for-your-bonds/
Throw in retail participation (who are less discerning and actually good for diversification of customer base) and the implementation of Dodd-Frank, we are beginning to see liquidity problems in the marketplace that may escalate into a stalemate that will see new high yield issuance crippled in the months ahead.
All this happens when the rally ends, for no one would complain when prices are going higher and profits are being made.
Link to article on an S&P report on expectations of a big slowdown in the leveraged loans market – http://ww2.cfo.com/credit/2014/11/wilting-demand-may-stall-leveraged-loan-market/
And the same for bonds according to the IMF as shown in the chart below.
http://blogs.wsj.com/economics/2014/11/10/todays-financial-market-risk-taking-looks-a-lot-like-2006/
Not so much a problem for a company like Ali Baba which managed to price 8 bio with much ease this week although some of my friends found it too expensive to be including in their portfolios for the A1 rating that the company commands.
As long as the stock markets hold up and the S&P continues to make all time highs like it did this week, along with mega sized takeover and mergers deals which typically signifies a market top.
From the chart, we are near 2007’s dangerzone.
And finally, something for us to think about – what the Ultrarich are doing.
“Ultra-rich investors are stockpiling cash, and to offset the drag on their portfolio they’re increasing allocations to private equity, according to the most recent quarterly survey of members by Tiger 21, a network of entrepreneurs, fund managers and corporate executives.”
If no one would listen to me, perhaps they would listen to the billionaires.
On the subject of billionaires, Singapore has added 40 Ultra High Net Worth individuals in the past year, not as remarkable as the rest of the world but noteworthy in that their wealth is growing significantly faster (than who ??, I ask).
Singapore bond markets are also frozen over with some horror stories out of Reuters. http://www.businesstimes.com.sg/banking-finance/alarm-for-singapore-bonds-as-private-bank-bid-falters
Traders have lost their marbles ? and what happened to Swiber ? I notice that one of their bond issues, the 6.5% 08/2018 one losing like 7cts in a week.
No news out of Swiber and if I were them, I would be happily buying their papers back at 90 cts just to prove that they have the cash and also to lock in a profit on their liabilities. This is exactly what the US banks were doing back in 2008/2009, recognising unrealised profits from reduced liabilities (crashing bond prices) which is a big hint to Swiber’s accountants (and please donate generously to keep this website and my ideas coming).
New issues are still coming strong, we have a SGD 500 mio HDB 12 Y today and Protelindo yesterday along with Sembcorp the day before.
Demand (and Bob Marley) lives and you have been warned. Because Whatcha gonna do when they come for you ?
Leaving you with the prices that I am not sure about.
USD Bonds
SGD 2014 Issues
SGD 2013 Issues
Category : Market, Rates/Bonds
Tags : ALI BABA BOND PRICES, ALI BABA BONDS, Asian Credits, ASPIAL 5.5% 11/2018, GRAND CHINA AIR 6% 11/2017, PROTELINDO FINANCE 3.25% 11/2024, SEMBCORP 2.94% 11/2021, SEMBCORP 3.593% 11/2026, SINGAPORE BOND MARKET, SINGAPORE BONDS, SINGAPORE CORPORATE BONDS, SWIBER 6.5% 08/2018, TATA INTERNATIONAL 6.65% SGD PERP, USD Bonds
TH, Thanks for sharing this article:
http://www.businesstimes.com.sg/banking-finance/alarm-for-singapore-bonds-as-private-bank-bid-falters
I had also just read it on today (Nov 22)’s Straits Times.
The local secondary bond market has been a more elusive sector in the financial world; the man-on-the-street probably has greater access and pricing information to riskier financial products such covered warrants, futures, FX. etc.
The inclusion of this article in Straits Times can create greater public interest secondary market bonds and make many realise that there is still a greater depth to explore … … within the well that we live in.
Haha. Elusive or exclusive ?
IMO, covered warrants, futures and fx are more transparent products and yet carry higher risk.
Well, its never too late to start looking at bonds.
FYI from Bloomberg: http://www.bloomberg.com/news/2014-11-24/china-s-companies-scrap-1-billion-in-bond-sales-as-yields-jump.html
Pas Possible !
They just cut rates !
Meanwhile in Singapore………..
Singapore bond market fastest-growing in emerging East Asia in Q3: ADB
http://www.businesstimes.com.sg/banking-finance/singapore-bond-market-fastest-growing-in-emerging-east-asia-in-q3-adb
Hi TH,
I’m thinking of adding US Intermediate Corporate bond (VCIT) and government bond (VWOB) to my asset mix to get exposure to credit risk. Is US long term government bond a reasonable benchmark? My main concern is that these bonds have different effective duration. Naturally, the ones with longer duration will generate higher trailing total returns, so wonder whats your view?
Hey TP,
The website is down and I am lucky if this gets through.
No posts or updates until I can find a way to fix it for free which means maybe its the end of the road for Tradehaven.
Ok, US long term govt bond = 30 year US Tbond and yes, every bond has different duration especially when you are talking about credits because if we get down to the mechanics, duration is affected by the coupons as well.
Intermediate is 5-10 years and the VCIB uses the Barclays US 5-10Y Corporate Bond Index. Top holdings Verizon, Apple, Goldman Sachs, Bank of America, JPM, HSBC etc.
VWOB is indexed to the Barclays USD EM Govt Index. Top holding Russia, Mexico, Indonesia, Argentina, Pemex, Brazil, Poland etc. I don’t think this one is exchange rate hedged.
Curve is flattest in a while now which means longer duration delivers marginally less return than it did before.
Up to you whether you think that inflation is fully priced into the curve. I personally think there is not alot of inflation risk built in (because of oil).
My plan is to substitute TLT with VWOB and VCIT in my portfolio to reduce exposure to interest rate risk. The yields of these shorter duration notes are comparable to longer term duration bonds too.
Hey if you need help to fix your web issues, do email me. I could help you see whats the problem — absolutely free.
Yes, they are comparable because it is a case of comparing apples with oranges. TLT is US sovereign risk. VWOB and VCIT are both credits which are affected by interest rate risk too except I am guessing you would assume that credit will improve when interest rates will rise which balances it out for you.
About the web issues, I don’t know where to begin except that we may need to start a Tradehaven fund raising campaign to save the site.
How much are we talking about here? I don’t earn much, but I sure can contribute. 🙂
That is so kind of you !!!!!
Somehow the problem has fixed itself. It is a database issue, I suspect.
No point throwing any money into site because we do not have enough audience and I have invested too much time and effort already 😉