Corporate Bond Buffet : What A Difference 2 Months Make

Back in June.

Why is safety under-appreciated even as US junk bond defaults rose to the highest level since Oct 2009 giving us a total of 9 defaults in May? Because it has been isolated to commodity companies so far. And there are really not a lot of bonds to choose from if you are looking for that 6%. Of the 300 over thousand active bonds in the world, I could only find over a thousand hard currency bonds that are not in default or a defaulting government and liquid enough that pays a 6% or more yield. Narrowing them down, we have the same old names as far as Asian investors are concerned – the Chinese real estate names, O&G names, Indonesia and Indian corporates etc.

I quote from my old Fabozzi bond bible “even though the actual default of an issuing corporation may be highly unlikely, the impact of a change in perceived credit risk or the spread demanded by the market for any given level of risk can have an immediate impact on the value of the security.””

Today, that same search has turned there are over 5,000 liquid (benchmark) and hard currency (USD, EUR, JPY, AUD, CAD, GBP) bonds that are paying >6% (excluding AT1 and perpertuals) which means we have a lot, lot more to choose from.

I did a random selection of names that I am more or less familiar with, Asian names etc in USD, leaving out quite a few of the distressed looking US and Latam ones. The results are listed below and I am surprised to note that some of these bonds were issued less than 3 months ago ! eg. Dawn Victor (Peking University), CAR Inc, etc.


Corporate Bond Buffet Spread : What A Difference 2 Months Make

Perpetuals are not faring too well in this sell off.

SMC Global, just issued last week, if off by over 3% since issuance as we can see from a random list of some perpetuals issued in the past 18 months or so.

Corporate Bond Buffet Spread : What A Difference 2 Months Make 1

Illiquidity has its benefits and we observe that OCBC SGD 3.8% AT1, the record holder for the lowest AT1 coupon in the world, is still holding up at 99.25/100.25 level.

I have also been told that banks are still offering some of the SGD sub debts to clients at 3%, most of them with about 5-6 years to call. The clients are probably unaware that short term interest rates are at 6 year highs.

Well, we all try our best and I think I just did. So if you know of any 80 y.o. private bank clients about to buy Stanchart 4.4% sub debt 01/2026 (callable 2021) at about 3%, have a heart and tell them the truth.