Bonds, Bonds, Bonds – Buying For All The Wrong Reasons

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This post was written for www.hnworth.com, a site targeting high net worth individuals in Singapore.

Have fun reading !

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It struck me that the biggest winners in bonds this month have been the atypical bond investor and somebody who invests for the not the usual reason of fixed income.

Partly inspired by a Business Times article titled Strange World Where Stock Investors Chase Dividends, Bond Investors Chase Capital Gains and a CNBC piece on The Case For Buying Negative Yield Bonds, I have to acknowledge the truism of it.

Calling Bluff On The Distress

6 years since the collapse of Lehman, there are still buyers and sellers of Lehman Brothers debt and the bonds are still changing hands daily. Lehman bonds would still be the biggest share of the distressed debt universe even as lawsuits are settled with some dragging out and new ones initiated.

I cannot think of an article more aptly titled as Lehman Trade A Gift That Keeps Giving for Paulson to King Street .

Key takeaway : “The investments have been a bright spot in a world of increasingly expensive securities because they are complicated to analyze, partly hinge on decisions made by judges and may take a long time to pay out, which reduces the pool of buyers to those who have adequate resources and available capital.

The assets meanwhile have surged in value after the bank’s trustees settled litigation at better-than-anticipated terms, and as central banks’ unprecedented stimulus to rescue the financial system from the global credit seizure caused by the bank’s failure pushed up prices of everything from real estate to derivatives.“
More than 6 years on and a resolution for patient bond investors still not in sight, cash locked away and with no coupons to tide them through.

Meanwhile, less complicated Kaisa bonds have surged last Friday on the news of a takeover offer from Sunac China Holdings, to return between 134-152% in less than a month to the bold buyers, many of whom include private banking clients who were seen at the bid at the low 30 levels on 7 Jan, egged on by their bankers offering up to 70% in loan value for those purchases.

Table of Kaisa Bond Prices

KAISA RUN

For every Kaisa, we have the Berau Coal and Bumi Resources both mired in distress and the oil companies in Honghua Group which was downgraded to B2 by Moody’s last week.

BUM BERAU RUN

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Category : Market, Rates/Bonds