Bonds In Conversation : Missing The Flowers For The Benches

I took a break yesterday because the best friend is in town and went down the Gardens By The Bay for my first visit.

The plants and flowers were great but I was more intrigued by the park benches and endeavoured to take as many photos as I could of those arty looking pieces.

parkbench collage

park bench collage 2

It was good to take a break from the markets and the crazy sell off in sovereign debt markets, the USD and European equities due to the weaker USD with a small reprieve last night when the S&P 500 came close to its record high set on 27 April with the futures prices showing we will make a new record tonight.

This week has been a contest of relativity – who has worse economic numbers, the hope of delayed rate hikes or more stimulus and how to tackle the problem of negative rates and bond market illiquidity.

Bond yields continue to adjust with market confidence returning in Europe that has been badly shaken by abrupt swings both in bond yields and currencies causing stock markets to take a tumble.

global bond yields

But it is like missing the plants in the garden for the benches, as the economy remains stagnant which is evident in the Economic Surprise Indices of the world that have swung to negative territory throughout, looking more doleful than they were 3 months ago.

global econmic surprise indices

Credit spreads are similarly stagnant with little change on the week and issuance continues on a healthy and growing trend.

With so much liquidity available for corporates who can access capital markets, it is hard to envisage equities suffering in the near term even as sovereign risks grow.

Yet it remains difficult to make a call in markets that are controlled by flows

Singapore bond markets are seeing a renaissance after the Singapore Savings Bonds announcement on Monday. A retail bond launched followed 3 days ago with Fraser Centrepoint issuing the first retail bond in over 3 years, a 7 year paper paying 3.65%.

We have not seen so many transaction in a week for a while with 5 new issues in a week suggesting a parched marketplace and a huge rally in the SGS market that saw yields dropping between 0.05 to 0.4% as SIBOR stabilised lower.

Market demand appears to be concentrated on the short end <5Y tenors which explains the success of the Soilbuild Reit 3 year issue, unrated and paying a lower 3.45%.

I remain neutral on credit and do not see big money making opportunities despite the relative calm on the surface despite the potential gains that will come from lower interest rates and I believe that there is a high risk of capitulation if sovereign yields remain volatile on currency fears.

Leaving with the indicative prices and wishing all a good weekend.

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2015 SGD Corporate Bonds

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