Bonds In Conversation : Blackout

Yes. The lightning storm yesterday has taken down my PC during the blackout that the place suffered and Ms Champion has done everything possible, including opening up the CPU to reset the BIOS or whatever that plug is, to no avail.

Therefore, my apologies that we will not be able to post the usual prices this week as I embark on the arduous task of salvaging the hard disk of the PC in the days ahead.

I am using the boy’s laptop to post this and its is uncomfortable working on a 15 inch screen with no access to the spreadsheets and prices that I take for granted for the other 364 days of the year.

The markets have been on helium, if you ask me, and I am not the only one who thinks that way. A hedge fund friend is pretty flummoxed by all this too, and says that he is just going on half empty these days with extremely small positions and no long term view.

We saw a huge return to risk this week with equities powering the way with new record highs in the Nasdaq and the S&P 500 that has taken every single skeptic’s breath away and dumb founded the rest of us that nobody will be able to think properly for a while which means that stock markets will just continue higher from here.

Safe haven bonds are also bearing the brunt of the risk on exercise, with German bunds suffering their largest % yield rise ever, from 0.07% to 0.15%, which is over a 100% change and EM bonds are seeing a renaissance.

All this is happening as the global economic data hits a soft patch and US economic numbers have not looked so bad for a while even as we head into the FOMC next week with expectations of some mention of rate normalization in the 3rd quarter of this year, as futures are pricing at the moment, that the stock market is more than aware of.

The USD strength story is starting to fall apart at the seams as companies complain about their overseas revenues taking a hit and the DXY index has come off for the week against  both the major currencies as well as EM, except for poor Gold which weakened to a 1 month low against the USD (ouch !!).

This comes as the G20 finance ministers identified the rising USD and currency volatility as the key threat to global economic growth.

I fail to see much optimism in the bond market which is driving itself into a tight corner because we cannot have several trillion worth of bonds in negative yielding territory and expect to emerge unscathed eventually.

Investors are suffering from a blackout of rationality as their primary concern is that they have not made enough money from the stock and bond market bull run. The return to risk has also made many an bond investor bold to seek out the distress papers that could double or triple their investments.

For the rest, there is demand for decent bread and butter yields which is evidenced in the recent United Envirotech SGD paper that saw its book oversubscribed many times over and the final coupon slashed down to 4.7% due to the company’s parentage despite the absence of a formal parental guarantee.

It feels like we will be living in a blackout period as far as rational investing goes and there is really nothing to blame for it except greed, perhaps, just as we cannot ever be prepared for a an earthquake like the tragedy that struck Nepal earlier today that is one of the strongest quakes they have seen.

As for me, lightning strikes, blackouts and earthquakes are a part of life that we will have to deal with, like the market next week into the month end and the FOMC (28-29 April) that promises to be wildly exciting.

Hopefully, the PC will be back in action by then.

Good luck !