Bonds In Conversation : Last Leg

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Just another 0.31% and the S&P 500 will turn December back into the black and we will have 7 consecutive December rallies since 2007.

It is the last leg of the year and all those financial year ends and it looks like we shall end the year on a high for the DM stocks and bonds.

Italian and French bond yields hit a record low despite their ratings cut as the Swiss National Bank introduced negative deposit rates for the first time since the 1970’s ahead of market expectations that the ECB will start their large scale bond buying programme as early as next month.

Alarmingly, we note that European corporates are being downgraded at their fastest pace this year with downgrades outnumbering upgrades.

The FOMC gave the market some needed time to think which naturally resulted in a burst of euphoria, yet the underlying problems have not gone away and the fact that some countries are facing high odds of default. Countries such as Venezuela with a 91% odds of a default.

Russians are stockpiling everything they can find and buying up big ticket expense items as a store of value.

And all the poor Russian affiliated names like GEELY announcing profit warnings along with the rest with high Russian export exposure like l’Occitane.

EM funds also suffered on Russian exposures and collateral damage to the other EM bonds and currencies which will give 2014 an unhappy ending for the 20 biggest international bond funds sold to retail buyers in Japan.

What I think ?

There will be race to plug gaps and cover shorts into year end which would leave markets even more volatile and vulnerable.

Most analyses attempt to inject that little bit of optimism and stimulate greed but it is not working in this volatile environment.

There is little meat left in investment grade bonds and the ECB would be Jan’s climax.

Market complacency is disturbing as we note that Singapore rates have spiked to some 4 year highs for the 1Y (0.735%) and 2Y (1.07%)interest rate swaps and the 6 month SOR fixing has broken 0.60%, a level not seen since 2012. This is an abrupt rise of 0.28% since end Nov even as 10 year SG bond yields are holding at their year lows (2.22%).

Not a good sign for short dated bonds, if you ask me.


This week in Singapore we had 2 consent solicitations out of Halcyon Agri and Central China to amend their financial covenants.

Combined with a gridlock in secondary market trading, I believe we will be in for a extended lull for Singapore bonds, as we wait for the short end rates to “fix” themselves (would be expecting some liquidity injection into year end).

All I can think of is the explosive start we shall have to 2015.

Leaving you with the indicative prices.

USD BONDSUSD BONDS 2SGD 2014 Bond Prices (indicative)

SGD 2014 CORPORATE BONDSSGD 2013 Bond Prices (indicative)