Bonds In Conversation : A New Chapter Begins

My apologies. This is Not Another Tribute to Our Dearly Departed Founding Father, Lee Kuan Yew, who has been called away from this world of ours and is resting in peace and therefore I shall leave him alone, for now. For if it takes death to bring us closer, then wherefore is the life lost in living ? (excuse my mishmash of fragmented bits of poetry)

Hence, a new chapter begins. We are heading into 2Q15 after next Tuesday and clean books again for another quarter, I shall stick to my grassroots work here and give my views on what I think is going to happen.

I think this is going to be a BIG CHAPTER, mark my words, as all new chapters go but more so this time because we are transiting from 3 months of nonsensical central bank actions into show-us-some-results time.

Not that markets have a lot to complain about because stocks and bonds have done well, only commodities producers are coughing blood, which shows up in the commodity currencies. Crude is strangely not the worst performer for this quarter, Iron Ore looks like it could take the crown this round down over 16%

2015 ytd


2015 ytd currencies

The end of the first quarter will see many strategy meetings to brainstorm for the rest of the year after many hectic weeks of just purely reacting daily to the currency swings and choppy oil prices.

Bond yields at historic lows and at negative should wake some people up as credit spreads grind tighter after the initial scare a few months back although we have some isolated cases of bond distress (eg Kaisa), the situations were well contained.

For example, my favourite HYG US looks like it has gone to sleep without much of a trend since December.

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.

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.

I think we have come to a delicate status quo in markets because we all better start watching for the most important thing in the world right now – Deflation.

We have fund managers coming out to warn of bond bubbles.

“Four out of five fund managers said bonds were overvalued in a survey of 300 global managers by CFA UK. Corporate bonds are more overvalued than ever before, while government bonds are the most overvalued asset class, the group said.

The group, which represents 11,000 investment professionals, says their valuations index, running for three years, is flashing red over the high valuations of bonds.”

But we have ECB QE and deflation too !

 My concern for the big chapter in 2Q15 is that we have not seen nothing yet.

The bond markets have been active and we are just at about run rate for 1Q14 with $ 1.14 trillion worth of bonds issued vs $ 1.247 last year.  The number of Chapter 11 cases of debt >$100 mio filed year to date is on track for 2009’s pace.

chap 11 run rate

In our hearts, we know that avoiding bankruptcy is the top priority of all companies which makes it a worry that it shall become an unavoidable outcome if funds cannot be raised in time.

9 months into the start of the oil price collapse which has been followed by commodity price drops, I should say that the timing is about right for some serious blood letting to occur, not meaning or wishing ill, but as a logical and practical result of a correction.

I am not bullish on bonds or interest rates, all except for perhaps, Singapore rates (not credits).  We have hit rock bottom in most places around the world, and negative is not the answer in the medium term no matter how much profits are envisaged.

Whether widespread contagion can be contained is the next biggest worry, which I think will be a lesser concern because too big to fail has become entrenched and the Nestles, Apples and Goldmans of the world will be safe from pain.

Thus, we will likely be spared from a new systemic crisis. Yet, it probably lead to the creation of a new world order. A world led by global corporations and mega central banks where our fates will be inextricably tied to in the new chapter.

As for Singapore, we have seen some interesting developments that speaks volumes for the next few months.

As the only developed country with rising rates, I see Singapore as a precursor and not the antipode to rising interest rate environment, ECB or no ECB. An obviously controversial view.

It is a pity that the Floating Rate Note market has all but died over here, after so many years of zero rates. Government initiatives will force some semblance of order back into the marketplace with retail bonds and ETFs and this super Singapore Savings Bonds to come soon.

It shall be FX driven in the early days but I expect we would end the quarter on firm ground as the rest of the world flounder on their bearings.

I would end by hastening all to go and pay their respects to our late founding father, LKY, for this is probably the closest we will ever get to him in person, physically at least, the ideological proximity I shall not comment on and it appears too late to tell him that you respect, love and adore him anyway although it is worth a try.  Just keep those eulogies coming….

Leaving with the indicative prices and a heavy heart….

USD Asian Bonds



2015 SGD Corporate Bonds


2014 SGD Corporate Bonds