Bonds In Conversation : Take My Breath Away

chinese airportBreathtaking photo of sight at Chinese airport.


Breathtaking week to be remembered mainly for the action in Hong Kong  as we witness the sheer power of a bull run, taking the HSI up over 8% so far. It is one of those phenomena that no one can really explain, some attributing it to the big discounts that H shares are trading to the A shares and the change in rules that allows mutual funds in China to buy H shares; and there are not many takers for my Monkey Trading Challenge idea .

Not to be outdone, European stocks staged their own rally with Portugal up 6.2%, the best performer, while the rest showed respectable 3-5% gains. And the Russian Ruble is undoubtedly the best performing currency for the week, gaining over 9% against the USD.

All this happening without much explanation even as the FOMC minutes came out to mixed interpretations as Fed officials remain half hearted about a rate hike which the market took to be good for equities (no hike), good for the USD (hike), and bad economic data is good again (no hike) just as last week’s dismal Non Farm Payrolls are forgotten because Ny Fed’s Dudley now says that the most important economic data for the past 7 years is not a clear economic indicator ? !! What have we been doing ?

The truth is pretty dire as we see US surprise us with poor economic data.


Poor economic data that has not translated itself into stock prices.


Economic Surprise Index vs 6M % Change in the S&P 500

IPOs may be facing a drought, but mergers are the new fad which is a clear sign that capital is only available to the big and beautiful companies.

The most alarming observation I made this week would be that credit downgrades this year are fast outstripping upgrades globally.  For instance, we have had 36 downgrades for Asia Ex-Japan by the S&P against zero upgrades so far, although Moody’s has upgraded India and Pakistan within 2 weeks of each other.

The record low yields are set to continue as Mexico comes up with a 100 year EUR bond that pays a whopping coupon of 4% ! Secondary market indicates price of 101 (3.96%) now (issue price 95.3 on 8 April).

It is no wonder that Europe is going crazy for Mexico 4% 03/2115, Switzerland became the first country in history to auction 10 year bonds at a negative yield, putting pressure on Germany to next because the German bund curve is only negative yielding up to 7 years. Who is crazy NOT to borrow in Euros ?

This gives hope to the high yield bonds out there whose numbers have soared since late last year to a new high, if the FINRA high yield corporate bond index is anything to go by.

number of hy bonds

Number of High Yield Bonds in the FINRA HY Corporate Bond Index


And with more negative publicity on Noble this week from another damning Muddy Waters report, their bond prices took a tragic beating, with their 6% perps falling to fresh lows as the rest of the field of Asian names rallied nicely from a credit and price perspective. That includes Kaisa rising some 15% after the good news of a loan from Sino Life.

noble perps



Global bond yields have just sat by for the week, well within ranges despite the 0.12% rise in US 10Y yields. Elsewhere has been a mixed bag, and lucky places like Singapore has seen a nice rally in government bonds with her yields at 2 month lows even as SIBOR breaks 6 year highs daily. It would appear a short squeeze has hit the marketplace, which has not affected the rest of the corporate bonds except for the HDB’s and high grade stuff.

1 new bond (actually 2, including the new UOL today)  issue out of OUE in the 5 year space which is seeing lots of interest from real estate corporates in the sub 4% coupon area that issuers and investors are both happy with. Secondary market activity has picked up for the perps such as Genting, Hyflux etc.

Barclays Says 2Q ‘Golden Window’ for Deals
This quarter is probably a “golden window” for issuance in 2015, both in terms of absolute yield and spread, says Ken Wei Wong, head of Asia ex-Japan bond syndicate at Barclays.
 “All the new investment-grade issues are trading close to their tightest levels thus far this year,” says Wong. “Post June, headlines on Greece will return and the noise around rate hikes will likely increase market volatility”

A breathtaking week indeed but I have always thought, if you take all my breath away, wouldn’t I be dead next ?

take my breath away

Good luck !

Leaving with the indicative prices.

USD Asian Bonds


2015 SGD Corporates


2014 SGD Corporates