Food For Thought : What Are SGS Yields Telling Us To Do ?
Yesterday’s headlines that 10 year SGS yields hit their highest levels since 2013 may not matter to most of us but it does ! Because we are close to the 5 year highs in the 10Y yield which was 2.79% back in Feb 2011.
The 2Y SGS are also traded to their 5 year highs earlier this year and 5Y SGS made a new 5 year high of 1.96% 3 days ago.
After a long winded and rather convoluted conversation with a friend yesterday, I hit on the best way to explain the situation to him.
It means that SGS yields are higher than when you last bought your corporate bond !
It also means that your corporate bond is more expensive than the SGS price at the time of issuance if the price of your corporate paper is still above 100.
This is only partially true, because your corporate bond could still be more expensive than the SGS if its price has not fallen proportionately and we are making a big fat assumption that credit spreads have stayed status quo.
In any case, I did a small table of SGS benchmark yields for his reference and have decided to share it with readers to give them some perspective on the state of the markets.
And here is the latest list of all outstanding SGS (benchmarks in bold).
He did some active switching of late, moving out of bonds that he did not like very much to bonds that still gave good value.
I shortlisted the bonds issued in the past 3 years that are still indicating above 100 or more, that could be switch candidates AS AN ILLUSTRATION. By no means am I suggesting that readers should take this list as a point of reference for bonds that are over valued.
Taking a cursory glance at the list, we note that some of these names have tightened alot in credit terms since issuance while the rest may be just short on supply or illiquidity.
Everyone knows that straight bonds are immune to interest rate movements and that SGS represents the risk free rate for Singapore.
Just some food for thought.