Bonds In Conversation : Oily Deflation Means The Best Assets In Life Aren’t Free

Markets are reeling from the OPEC decision which was already known a week ago but nonetheless still a confrontation of OPEC versus BoJ and the ECB.


And a wonderful solution to it all !


Excess capacity = 1.3 mio barrels a day @ 70 bucks a barrel = 91 mio bucks
365 days = 33.2 bio ! That is all ! and definitely more effective than the 1 trillion that they intend to spend.

Much cheaper than all that QQE and bond buying.

I know I have been harping that “a 25% drop in prices would add, on average 0.5-1% to GDP.”

Would it ?

What if the deflation mindset sets in ? And people stop spending because a dollar today is worth more tomorrow ? And ordinary Chinese stop buying that extra property to take the burden off the burgeoning inventory of unsold properties.

It will be a vicious cycle, if it does happen as investors hoard cash and consumers stop spending which will lead to less demand and slower growth and even lower oil prices and more stimulus which will only drive the prices of the “best assets” up. And we can forget about the important wage inflation that the Fed is hoping for.

Why is it that investors are supposed to take all the risks and buy real estate, junk bonds and stocks when central banks and banks are buying up the good stuff ?

You see, the best assets things in life aren’t free, with best assets referring to the stuff that BoJ and ECB will buy next.

Japanese 2Y yields finally broke the 0% mark, 2 years after Swiss 2Y yields did the same, joining the ranks of Germany, France, Netherlands and Sweden too.

SOVEREIGN YIELDSYear to date  yields of sovereign bonds.

Sovereign yields are all trading near the year’s lows.

And the best assets are definitely not Swiber bonds, as reported today ! Dear Bloomberg and Reuters trip over themselves each day to report on the utter lack of depth and price discovery in the Singapore marketplace which is scaring potential buyers away, something they should have done during the bond issuance phase and not after they have been oversubscribed several times over.

“Singapore’s wealthiest residents may be regretting bank rolling the island’s oil industry.

Bonds from oilfield services providers are the worst performers among all local notes this year as the fuel slumped more than 30 percent since June. Two-year securities of Swiber Holdings Ltd., which helps build offshore platforms, are trading about 7 cents below the average price for Singapore debt sold since Dec. 31. Most of the debentures were taken by private banks on behalf of their affluent clients.”

And we can be sure the worst is not over yet for the O&G scene because the deliveries for orders are usually a year down the road so we are some time away from payment failures.

That is why I find myself, strangely, on MAS’s side this time.

Saluting MAS who,

1. Has not done any QE or attempted to or intend to.

2. Led by example, warning of the risks of over leveraging since last year.

Dec. 3 2013 (Bloomberg) — Singapore’s central bank warned that rising global interest rates could weigh on household and corporate debt and pose risks for banks in the city-state.
A 3 percent increase in mortgage rates would boost the share of overly indebted households to as much as 15 percent from 10 percent now, the Monetary Authority of Singapore said in its annual financial stability review today. Banks also need to guard against credit quality deterioration as rates increase after Singaporean companies’ median debt-to-equity ratio rose to
39 percent at the end of June, the authority said.

3. Also, Singapore GLCs have been prudently deleveraging since last year eg. Capitaland.

4. No comments on Temasek or GIC.

And MAS will not be succumbing to easing as the rest of the region’s central banks are, as we speak, the next in line being India with the Finance Minister seen to be demanding a rate cut next Monday when he meets with the central bank.

Singapore’s Monetary Policy Stance Remains Appropriate: Robinson
Nov. 25 (Bloomberg) — Edward Robinson, assistant managing director and chief economist, Monetary Authority of Singapore, comments in a press briefing today.
• MAS remains vigilant of developments in global financial markets and stands ready to curb excessive volatility in Singapore dollar exchange rate: Robinson
• Singapore dollar nominal effective exchange rate remains within the policy band consistent with policy stance announced in Oct.: Robinson
• U.S. interest rate rise would mark restoration of sustainable growth: Robinson
• U.S. rate rise would be net positive for global growth: Robinson
• Falling oil prices will have a moderating effect on Singapore’s 2015 inflation compared to 2014
• Divergent global monetary policy has resulted in some currency movements recently

Thus when we have the Real Estate Developers’ Association of Singapore suggesting today that the government must be ready with support if the property market worsens, I am not sure if the government would or should.

Govt Must Be Ready With Support If Property Market Worsens : REDAS

And our Finance Minister just  said “We’ve seen some correction in both private property prices and HDB resale prices over the last four to five quarters, but there is some distance to go in achieving a meaningful correction after the sharp run-up in prices in recent years,” said the chairman of the Monetary Authority of Singapore at the Credit Counselling Singapore’s 10th anniversary luncheon.

Thus, Singapore shall be the first to have higher rates, judging from the moves in our short end rates over the past weeks which I pointed out yesterday.

As the rest of the world continue in their search for assets giving Pakistan (newly issued 6.75% 1 bio USD 12/2019) and Ethiopia a prime slot in new issuance space and even Argentina’s defaulted bonds pulled off a rally over the past month.

Argentina 8.28% USD 12/2033 bond

Argentina 8.28% USD 12/2033 bond


Sovereigns and remote sovereigns eg. Cagamas (new issue coming), are all rushing to tap the bond markets as Chinese developers rebound in junk space although some Indian names took a beating yesterday on the back of an RBI circular on methods of accessing overseas debt markets which led to Greenko bonds crashing some 4 points.

And today we have the O & G names crushed yet again, as if no one in the world is going to drive another car.

No one is really paying attention to that in Singapore as I am hearing some gossip that someone is desperately trying to cover a fat finger accidental short in Olam shares (because Temasek owns 80%), where about 12 mio was sold by accident and been buying since 2 hours ago and is still 9 mio short (price is 20 cts higher).

olam gip1

He would qualify to be the most miserable person in the world the day after Thanksgiving.

Other gossip going around about traffic policemen going around sing HD cameras to nab people for the next 60 days before the financial year end.

Drive safe and have a nice weekend.

Indicative prices of USD Asian Bonds


SGD 2014 Bond Prices (unverified prices)


SGD 2013 Corporate Bonds (Unverified)