Bonds In Conversation : What Do We Do With The Drunken Sailor In Mid Year ?

29/05/2015 by

What shall we do with a drunken sailor,
What shall we do with a drunken sailor,
What shall we do with a drunken sailor,
Early in the morning?

It’s mid year, we are all tired and probably very confused but wouldn’t admit it for it has been chaotic, to say the least. https://tradehaven.net/market/2015-outlook-a-bittersweet-symphony/

We started the week with the Fed on our backs and their intentions to raise interest rates sometime in the next quarter, economic numbers have turned in their favour, albeit in a lukewarm way. Greece and China bubble fears have dominated sentiments for the rest of the week.

For my part, I have stopped paying attention to the details and the financial porn we are getting in the media that only seeks to grab our attentions without value adding much to viewpoints and in fact, distorts reality to a major flaw.

And thanks to my grandmother’s passing last week, I had time to properly reflect and assemble my thoughts during those hours of vigil, to come to concur with several strategists that the markets are caught in a somewhat hostage situation, in “an ocean liner without lifeboats” which I wrote about sometime mid week. https://tradehaven.net/market/economic-lifeboats-ask-yourselves-are-you-spending/

If we take Singapore as an example, I think spending has slowed and will continue to slow as the government moves to launch retail bonds to encourage savings.

The only market that is ballooning these days is the bond market, equity markets are not exactly growing in terms of issuance and IPOs which is making them inflate in an unhealthy way, for the reasons of limited supply (stock buybacks) and expectations of lower interest rates via stimulus.

Both are hardly encouraging scenarios to me and I see a bond market meltdown as quite inevitable going ahead with the market ignoring the recent chaos in Europe.

We have come to a crisis in confidence as even regulators lose hope that we shall have anything but lacklustre growth ahead. Growth is still better than no growth, so we should be grateful if we continue to stall which brings me to my take for the first 6 months of 2015 – What shall we do with the drunken sailor ?

The sailor is drunk on expectations that governments will continue to prop asset prices up which is a bad reason for investing.

My friends tell me not to think too much because “wrong or right is only decided by the end results” and “not whether it is greed/fear, smart/stupid”, lucky traders are the happy traders and it is better to be lucky than smart.

I am neither lucky nor smart but I have to make the best use of the resources I have, which is not alot, but I believe we are coming to the end of blind investing because the rising tide will no longer lift all boats. Unfortunately, it is not the way markets have been conditioned for the past 7 years and there will be rough seas as we adjust to the new paradigm.

Bond prices have been amazingly well behaved in the past month and spreads have tightened mostly with high yields back in demand.

We saw some interesting issues in Singapore this week, Peking University and GLP in USD and we also had First Sponsor and Century Sunshine in SGD. There is nothing like diversity that we need as Fundsupermart launches their Bondsupermart – a bond platform for retail investors, filling up the gap that SGX has left open.

I believe the timing is perhaps unfortunate with the Fed hikes coming and bonds looking to lose favour in the investment world. But I could be proven wrong for afterall, Singapore interest rates have bucked global trends for most of the year which gives the market some buffer against higher rates.

It has been 7 good years for bonds and equities alike. While we would like to remain drunk for the nice feeling of stupor, we should consider what they do with drunken sailors on ships without lifeboats.

Leaving with the indicative prices.

USD Asian Bonds