BONDS IN CONVERSATION : WHO NEEDS GAME OF THRONES ?

I hear that Season 5 is over and people are moaning over the loss of the last hero left, Jon Snow. If there are any lessons in the GoT series, it is that there is no limit to evil and greed, and things can and often do always get worse.

Well, I bet there are many who would agree with me that markets in the past week have been more exciting than Game of Thrones with even more twists and turns that has everyone riveted to their screens for fear of missing a split second comment and the misinformation from the media. Mornings are fully occupied with China and afternoons till night is all about Europe and the Greferendum.

The best day must have been the full moon madness day, 1 July.

A shocking headline that the Greek government had conceded to their creditors’ terms caused a massive spike in the EUR before it was realised some hours later that it was an old letter that was rejected the night before.

This was accompanied by further losses in China as speculators threw in the towel and all hope of state support that never emerged, bringing the SHCOMP Index’s 30 day volatility to 55%.

Meanwhile, the web has started crowd-sourcing for Greek bail out funds, and they are still €1.59 billion short.

greece bailout crowdsourced

I have no doubt that things will start to get more exciting ahead as markets reprice economic reality.

Note that VIX has opened a nice gap in its weekly chart which hints at the vulnerability of the stock market and now that we have come to first year anniversary of the oil price collapse, I would expect that companies would be realising the effects of lower oil prices properly given that many had hedge oil prices ahead.

Thus it is no surprise that the world CPI is at a 5 year low, and lower than any other time with 2009 excepted.

world CPI

China’s slowdown is trickling into the region that even poor Japan is affected.

JAPAN AFFECTED BY CHINA

To put it all in perspective, we have the BIS, popularly known as the central bank of the central banks, published their 85th annual report with some well worded warnings to central banks, pointing out monetary policy failure in creating financial imbalances and vulnerabilities in the world.

Financial cycles are now highly sensitive to monetary conditions and government meddling, like China was censured for this week.

FINANCIAL CYCLE PRONE TO MONETARY CONDITIONS BIS

We do also know that the central banks are fast running out of bullets, as The Economist pointed out and that “wriggle room” has fallen by a third since 2007, worse for some countries. http://www.economist.com/news/finance-and-economics/21654063-rich-world-governments-will-not-have-much-wriggle-room-when-next-crisis?fsrc=scn/tw/te/pe/st/atightsqueeze

NO MORE CRISIS

The outlook is, at best, mediocre for the G3 and mostly bleak for the rest of the world. Indeed, Japan, the US and Europe are showing better economic data these days.

Thus bond markets have, at last, lived up to their role as the safe havens this week, with issuance virtually non existent but prices holding up despite some credit deterioration.

It is worthwhile to note that SGD corporate bonds have generally underperformed this year with the average prices of bonds issued in 2015 under 100.

I am frankly unsure about credits given the heightened uncertainty in the stock markets. There will be repercussions, for sure and the intrigue is building up for the next scandal out of China or anywhere, at this rate, especially with hedge funds suffering their worst drawdown ever, that is outside a crisis, on Monday. http://www.bloomberg.com/news/articles/2015-07-02/hedge-funds-had-a-really-bad-day-this-week

If this is not more exciting than Season 5 of GoT, then I rest my case.

Leaving with the indicative prices.

Asian Bonds

USD BONDSUSD BONDS 2

2015 SGD Corporate Bonds

SGD 2015 BOND ISSUES

2014 SGD Corporate Bonds

SGD 2014 CORPORATE BONDS