Bonds In Conversation : Look No Further Than Singapore

Happy Spring Equinox ! Spring time at last !


I had coffee with a friend who was looking for some good bonds that yield 4% and I told her that 3% is the new 4% these days.

Aren’t we lucky to be in Singapore ? Where it is possible to still get good quality papers at 3% for 3-5 years and where our AAA sovereign bonds are now the highest yielding in the developed markets of the world where interest rates are defying gravity, making new highs,  even as US treasuries rallied after an unexpected FOMC outcome.

Pretty quiet week for credits with spreads trading in line as global yields fall.

Again Singapore stands out, with most corporate bond prices unchanged even as government bonds tank, for credit spreads to compress and allowing names like CDL to issue at their tightest 5 year spread since the crisis, printing SGD 125 mio at a mere premium of 0.79%, tighter than DBS 5Y sub debt credit default swaps.

Not so lucky is Centurion Corp who had to pull their 5 year issue that they were willing to pay 5% for, in a sign of an anemic marketplace, noting that most of the new issues this week have been barely oversubscribed.

The fault lies in the new highs we are seeing daily in the short end SIBOR and SOR rates that continue to fix higher in a market panic over the USDSGD and the prospects of MAS re-centreing the currency lower on the back of lower inflation expectations which would lead to higher interest rates that is unique in the case of Singapore.


The only conclusion I can draw is that it is a good time to sell those corporate bonds or make some portfolio adjustments, if the prices have not changed, because the credit vs govi spread has compressed.

As funding costs rise, the leveraged portfolios would not be delivering returns that are commensurate with the risks and if those papers are still in the money, why not sell them before the contagion spreads ?

In all likelihood, global eyeballs will soon be turning to Singapore even as fund managers exit the bond market over concerns on the USDSGD. I do not believe that will be a deterrence to the reserve portfolios and I would expect flows to return once currency volatility abates.

On the eurobond and US bonds front, issuance has been robust, matching 1Q14’s  blistering pace. Asian bonds in hard currencies look set to break 2012’s first quarter record of USD 68 bio,  which is a stark contrast to Singapore’s SGD 4 bio for the year so far, well short of 1Q14’s SGD 6.6 bio.

The Bank of International Settlements, widely known as the central bank of central banks, has come out to warn credit market illiquidity as bank trading freezes, something Singaporean bond investors are familiar with.

(Bloomberg) — Corporate bond trading is failing to keep up with the market’s growth as dealers cut inventories, risking gridlock if investors all rush to sell, according to economists at the Bank for International Settlements….. The proportion of securities regularly changing hands in the U.S. fell to less than 5 percent from 20 percent in the period, according to the report.

“Trading volumes have not kept pace with the surge in debt issuance,” the economists wrote. “Market liquidity is increasingly concentrated in the most liquid securities and market segments, while conditions are deteriorating in the less liquid ones.””–bis-says/41331900

There was also the warning on “the possible dangers of an increasing concentration within bond markets, with a few large asset managers becoming dominant. “Market liquidity may increasingly come to depend on the portfolio allocation decisions of only a few large institutions””

This adds to my case for a portfolio reorganisation soon because we should be expecting more defaults to come in the next few months in commodity space (because it is almost 9 months since oil started tanking) and given the excessive volatility in forex, I cannot help but imagine some corporations (corporate hedges) and financial institutions would be impacted.

Leaving with the bond prices.

USD Asian Bonds


2015 SGD Corps


2014 SGD Corps