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.”” https://tradehaven.net/turning-the-summer-heat-up-on-junk-bonds/

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.

 

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.

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.