Bond Focus : Getting Ahead With Carry Trades
This post was written for www.hnworth.com, a site targeting high net worth individuals in Singapore.
Have fun reading !
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I was looking at my grandmother, who is a hundred, thinking about the new Mexican 100 year EUR 1.5 bio bond issue, and feeling slightly guilty that I was comparing her to a bond issue.
There are 118 bonds out there right now that were issued with a hundred year maturity, and over a dozen of them have a longer maturity than Mexico’s Mar 2115 end date, all from Europe of course and we have Bolivia coming close with a 2114 maturity for their 99 year bond issued earlier this year denominated in their Bolivian Boliviano.
These grand old countries, Bolivia founded in 1825 and Mexico in 1821, have a right to be doing these 100 year bonds but I cannot see Singapore, founded just 50 years ago, attempting a 100 year bond issue not for any reason more than if the coastline will be swallowed by the rising seas in a hundred years time.
But at 4% (or 3.9% last traded) yield for a 100 year bond, it would be a slow crawl for those coupons, granted that Mexico issued a 100 year GBP 1 bio bond at 5.625% (current yield 5.32%) last year and a 100 year USD 2.68 bio bond at 5.75% (current yield 5.3%) back in 2010.
How do we maximise those gains within our lifetimes when the average yield on US corporate bonds have fallen to 2.94% against the 10 year average of 4.68% ?
Enter my bond buddies, the good friends who are masters of the bond game or the carry game, as it is better known as, where returns are not just about the coupon interest but getting the most mileage on the investment via leverage and the currency of leverage.