Bonds In Conversation : A February To Remember

Profiting from confusion. Markets are back in all the shunned assets this week starting with oil, the EUR dollar and junk bonds.

Check out the best performing assets in Jan 2015.  (Source : Zerohedge)

Best performing assets in USD terms

Best performing assets in USD terms

Best performing assets in local currency terms

Best performing assets in local currency terms


CME reported that oil futures trading volumes broke daily and monthly records for and total futures volume for Jan 2015 is highest since 2008 and oil is closing the week up

Brent nearest contract weekly chart.

Brent Crude nearest contract weekly chart.


EURUSD has also rebounded off its 11 1/2 year low, up a credible 1.6% against the USD on the week, keeping up with the commodity currencies of NOK, CAD, MYR and NZD.

eur weekly

EURUSD weekly chart


And junk is flying, led by oil bonds have made US $ 2.5 bio in profits to speculators despite warnings that 15% of high yield energy bonds will default in the next year. The US High Yield Corporate Bond ETF, HYG, has made a 2 month high and showing signs of a strong weekly close.

iShares iBoxx USD High Yield Corporate Bond ETF

iShares iBoxx USD High Yield Corporate Bond ETF


Meanwhile, the economy reels from the effects of US$ 50 oil with capex cuts and layoffs daily.  Latest is China’s CNOOC slashing spending by 35% after BP (-20%) and Chevron (-13%), along with Gazprom, Shell and gang.

Rating agencies on rampage after S&P was fined US$ 1.38 bio for their negligence in the pre crisis sub prime debacle.

Negative Watch :

Bank of Scotland PLC  A
Commerzbank AG A-
Deutsche Bank AG A
Raiffeisen Bank International AG
Unicredit Bank AG

Downgrades :

Barclays PLC BBB prev A-
Credit Suisse Group BBB+  prev A-
HSBC Holdings PLC A prev A+
Royal Bank of Scotland BBB- prev BBB+ (2 notches)
Standard Chartered PLC A- prev A

It is ironic because we have Indian banks all higher rated these days as IndusInd Bank was upgraded by Fitch to AA+.

The massive Russian downgrade to junk has been contested by none other than the largest Chinese rating agency, Dagong which has proceeded to maintain Russia at A, on a stable outlook, claiming that the big 3 rating agencies have questionable motives. (I could be persuaded that it is a plausible explanation especially when Moody’s is under investigation for their role in the sub prime collapse and such moves could cut a deal on their settlement bargain ?)

Even Temasek invested many valuable man hours into a 29 page report to criticise the S&P on their new proposed methodology that would put Singapore on par with Greece.

I think ratings are of less consequence these days as I note media chatter increase in the recent week on the record breaking negative yields in the bond market as US national debt broke US $ 18 trillion on 1 Feb.

The latest count.

world bond yields 2015

Alarm bells are sounding out loud on the absurdity of the fact that 16% of global government bonds are yielding negative which I personally is a good thing for them to CUT TAXES because they have an extra source of income if they issue bonds at negative yields ! And silly Denmark went and suspended sales of bonds instead !

German 2 year yield hit a record low of -0.196% and their 10y bunds are yielding lower than Japan’s as the global debt mountain climbs, rising to US $ 57 trillion (do not worry – 18 trillion is from the US government).

global debt

No wonder central banks are rushing to cut rates to spark a currency war with 16 central banks year to date joining the band wagon.

Why ?

Because in a depreciating environment, today’s debt will be worth a lot less when tomorrow comes.

I suspect most of the price action we are witnessing are purely speculative as confusion plagues the real investors.

Credit markets are whip sawing on Kaisa and Berau headlines, in Asia and we have the Radio Shack’s long awaited bankruptcy in the US (bonds at about 15 cts to the dollar). Names like Nestle now also trade in negative yields although I am sure the ECB will not be buying them for QE.

Singapore markets getting boring as BT reports (politically correctly) “Local bond market slumps as investors stay away. Volatility is spooking bond investors, and fed up with declining interest rates, they are staying away. The local bond market has slumped as investors keep their powder dry, with January sales not even reaching 30 per cent of the volume achieved a year ago. Last month, Singapore dollar bond issuances from 11 deals raised a paltry S$638 million, compared with S$2.2 billion in January 2014. For the whole of 2014, bond sales reached S$23.5 billion, up from 2013’s S$19.8 billion. The high was S$31 billion in 2012. Bond sales elsewhere have also been dismal. Last month, proceeds raised from yuan bonds were less than half at 23.8 billion yuan (S$5.12 billion) against 50.1 billion yuan in January 2014.

[Not volatility lah ! More like credit losses and illiquidity heaped on customers by banks !!- haha]

But good quality names are steadily attracting inflows especially for Indian (Reliance Industries 30 years at only 4.875% !!!) and Chinese (Tencent) etc credits as confidence grows in central banks keeping rates low although, like I said on Monday, I am not sure if that is where the profits are.

Leaving you with the prices and good luck with oil and the Non Farm Payrolls tonight !!

USD Asians Indicative Prices


SGD Corporates 2015 Indicative Prices


SGD Corporates 2014 Indicative Prices