It is official but I get confused. Euro-area bonds are delivering negative returns year to date. But weren’t they negative yielding anyway ? which is also a negative return ?

Going through the list, the best performing bonds for the year would be ranked in this order.

1. USD HY Corps +4.37%
2. USD EM Corps +4.23%
3. EUR HY Corps +2.7%

Worst performers.

1. Pac Rim Sovereigns -4.89%
2. Global DM Sovereigns -3.68%
3. Global IG Corps -2.62%

Thus it paid to throw caution to the wind for all that money that went searching for yield in the negative yield world have done well. Or perhaps not so well compared to anyone who jumped into the Chinese IPO frenzy (not available to outsiders) because of the 144 firms that did their IPO this year, the average share price return has been 539% (or more not counting this morning’s record surge in the SHCOMP to break 5,000 for the first time since 2008).

In the past week, we have a sea of red for stocks and bonds around the world except Chinese shares and Greek bonds this week and a sea of red of most currencies except the EUR, SEK, CHF and INR. The bond market meltdown has not come a moment too soon as we had expected last week.

As we head into half year closing, I suspect we shall be seeing much unlegging because central banks are slowing on the rate cut war (last major cut was PBOC 10 May) and investors have time to stop reacting and think.

Astute investors are trimming and unlegging as volatility eats into their SHARPE ratios (risk-reward) which suggests that only investors who are unconcerned about SHARPE ratios are left in the markets which leaves us with mainly the speculators.

Indeed, crash-boom-bang markets are not the way to go as we noted yesterday in the swings of the SHCOMP.


When people have time to think then perhaps they will realise that negative interest rates are not sustainable and the collapse of European bonds is logical.

I think we have come to critical levels in bonds and the biggest risks now are not so much the level of yields but the extent of capitulation to expect from all this volatility that will undoubtedly result in contagion on the other asset classes in the portfolio or force the hand to sell the family jewels like their favourite high yield bonds ?

Secondly, the sustained rise in yields will re-calibrate the risk free rates that are used to benchmark investment returns which would result in lower prices if returns are to be maintained.

Unless we see a re-rally in sovereigns, it would be difficult to justify investing in this environment and therefore, Sharpe investors are sensible to unleg and hedge themselves because a rally into mid year can only be led by the likes of central banks for their endless balance sheets and how smart can that be ?


Singapore government bond yields have followed in the global sell off with yields up 1 to 25 bp on the week. Corporate bonds prices have also followed lower.

While issuance has remained brisk in hard currency space (EUR and USD), the SGD market is likely to slow in the face of interest rate volatility.

Leaving with the indicative prices.

SGD 2015 Corporate Bonds


SGD 2014 Corporate Bonds