Bonds In Conversation : No Cut Means Hike ?

Thank goodness for the long weekend coming right up in this crazy world of earthquakes, Russian spacecrafts spinning out of control in space, riots and elections.


After a frenzied week where we saw one of the biggest corrections in FX markets that has sustained for 3 weeks, bonds are starting to look mighty precarious these days.

FOMC and Greece aside for the moment, the ugly head of illiquidity, which has been thrown about since last year when Dodd Frank rulings set in, is rearing as critics continue to voice their displeasure.

Bill Gross, the bond manager who joined Janus Capital Group Inc. last year, said there’s “no liquidity in bond markets,” with small trades pushing around prices in the world’s biggest debt market. …..“Treasury bonds move 2-3 ticks on even small trades,”

Singapore witnessed this first hand with Otto Marine bonds as what appears to be a 0.25 mio trade, and indeed many wonder if it anything traded at all, moved the market by 20 cts as the bond price plunged from 90 to 70 (in some cases, the bid was quoted at 65) in a market blackout. Current offers sit at the high 80’s level with suggested bids i.e. not firm.

German yields, not content with their >100% spike last week, continued to ascend higher as European government bonds and stocks sold off in a massive overnight move, keeping pace with a stronger EUR dollar just when Poland joined the negative yield club.

10y yields ytdYields are reverting to mean levels, year to date.

As illiquidity pushed the prices up, illiquidity accompanieth their fall. Gundlach, the newly crowned Bond Market King after Bill Gross’s exit, can take full credit for his well timed remarks to dump German bunds.

Equities continue to have the only laugh in town, along with oil and gold, the fallen stars that are regaining some lustre.

They will continue to laugh because no central bank will be hiking rates anytime soon and it is a new age where “no cut” is probably as good as a “hike” although that does not mean much in this world of extreme market positionings and ILLIQUIDITY.

The only conclusion we have is a non conclusion after this week – the Fed is not showing their cards, Europe is spiraling out of control like the Russian spacecraft, China is not telling us if their QE is the real thing or if the rumours are real and the rest of the world is waiting.

And that sets the stage for hysteria, if you ask me, as uncertainty eats away and portfolios get increasingly uncomfortable in this prolonged period of secular stagnation (curve flattening) and stimulus efforts become ineffectual over time.

On the credit front, corporate bonds are enjoying a moment of brief respite as oil prices rebound and stocks hold steady, taking some heat off the debt markets.

In Singapore, this has allowed some oil names to rally, such as United Energy Bermuda, while the O&G shippers were hit by the Otto news. Mapletree Commercial Trust’s new 8Y paper also spurred a price rally (not reflected in transactions)  in the good quality Reit names as their credit spreads converged with the new bond’s.

I remain sanguine and would remain underinvested like I mentioned for the lack of a clear direction (as the USD reverse course), looking forward to the long weekend as a good Chicken Soup for the World’s Soul. My heart goes out to those in Nepal.

Good luck.

Indicative Prices

USD Asian Bonds

2015 SGD Corporate Bonds (I realised I missed out some names before eg. Rowsley. My apologies !)


2014 SGD Corporate Bonds