Bonds In Conversation : Silence Of The Lambs

No doubt it is the year of the Sheep and credits, taking a backseat from the historic highs of the stock markets, have been sheepishly outperforming.

A quick glance at the indices shows that high yield bonds are trading near their 3 month highs in valuations, so much for all the negative headlines out there that are threatening to scare us out of our wits.

Case in point : Major Firms Are Saying the Stage Is Set for Another Crisis in the Bond Market

While the biggest banks have cut back on their positions in risky, speculative-grade debt, it’s steadily migrated to large institutions, insurance companies and mutual funds. Such firms have boosted their holdings of corporate and foreign bonds to $5.1 trillion, a 65 percent increase since the end of 2008, according to data compiled by UBS. ……………….ballooning bond funds that own more and more risky debt — may be a less bad option, but one that still threatens to wreak havoc in credit markets.

“Our understanding of the institutional asset management industry is rather nascent,” the UBS analysts wrote. “The contribution of institutional investors to financial stability is positive in good times, but their impact is less certain in bad times – particularly very bad times.””

Yes. Agreed but proven wrong as ETF’s balloon and are expected to hold $5 trillion in assets by 2020  and Jeff Gundlach, arguably the best bond hedge fund manager, prepares to manage SPFR Doubleline Total Return Tactical ETF.

And European markets gone bonkers with $1.9 trillion of govt debt yielding negative even though the ECB only expected to buy about a trillion worth starting next month.

Inflows into debt funds continue for the 5th week in a row.

And for those expecting rate hikes, the money is also pouring into the loan funds.

Could it be that markets have no choice in the matter but to stay invested and as such, buy stuff that they prefer not to touch as suggested by Citibank ?

citi credit

After last night’s US GDP numbers, the case for secular stagnation continues – slow growth for a protracted period because there is nothing sustainable about growth spurts (US 2Q & 3Q 14)  in the current age of uncertainty.

secular stagnation

source : Larry Summer’s keynote address at Princeton


My personal favourite HYG US is closing February 2015 at a 3 month high.

Weekly Chart of iShares iBoxx $ High Yield Corporate Bond ETF is an exchange-traded fund incorporated in the USA. The ETF seeks to track the investment results of an index composed of U.S. dollar-denominated, high yield corporate bonds.

Weekly Chart of iShares iBoxx $ High Yield Corporate Bond ETF is an exchange-traded fund incorporated in the USA. The ETF seeks to track the investment results of an index composed of U.S. dollar-denominated, high yield corporate bonds.


So, the million dollar question that I have been asked about a dozen times this week from various people, all wanting to MAKE MONEY.

Bankers, economists, strategists and central bankers all all flawed.

Yesterday, I read that macroeconomists have all mostly left out financial stability factors in their monetary policy models; The Economist also pointed out that empirical research in finance is false; and, Economists around the world cannot decide if the fall in oil prices is net positive or negative for the world.

And to my delight of delights, during coffee yesterday at Dempsey, a good friend and fund manager whom I greatly respect echoed my reply. “For once, there is little that I can see worthy of  investing in.”

Silence of the Lambs !

… Now that is not exactly true because China came out to cut rates over the weekend before I managed to get this published and again, I am not sure if it means we should panic or rejoice ?

Back in Singapore, a most interesting 2015 Budget that is prompting many a bank analyst to now call for an April MAS re-centreing of the SGD against the NEER basket like I was advocating for earlier in Feb.

Interest rates have decoupled from the US and we are seeing the largest premium with Singapore rates are higher than US rates for the first time since the Asian Crisis back in the 90’s, exceeding that of the Lehman crisis.

The bond market discomfort continues to show with new issues slowing to a trickle and limited to the established rated names like Singtel and Mapletree Greater China Trust coming out with a 6.5 year and 7 year issue respectively.

I notice some reports from banks trying to revive investor interest in the local offerings but remain slightly skeptical especially after the FROZEN period in 4Q14 and the dearth of trade-able prices. Besides, what is the point of publishing market calls of overweight and marketweight for inventory, and not a single underweight (for the obvious reason that you are trying to unload these bonds) ?

I would not expect happy days to return too soon with the fears over interest rates; shipping stocks still floundering as Rickmers and Otto Marine post losses; poor Noble getting a bashing; and real estate doldrums continue.

Good luck and have a nice weekend !

Indicative USD Asian Bond Prices



2015 SGD Indicative Bond Prices


2014 SGD Indicative Bond Prices