Bonds In Conversation : Ending The Quarter On High Drama

It has been nothing but drama this week after the FOMC last week, starting with good news out of Greece for their elections, the Volkswagen scandal, 6 1/2 lows in Chinese manufacturing, Brazil hitting a low and rebounding 7% overnight as the stampede disaster in Saudi Arabia claimed over 700 lives. Even Janet Yellen could not give a speech without a fainting spell and some lady tried to throw a shoe at the Pope who is visiting the US at the same time Chinese President Xi is there an official visit.

Autumn arrived on Wednesday with the equinox change, we had Japan on a 3 day break and China going off for a week next Tuesday after this Sunday’s mid autumn festival where we shall see the last of the blood moon eclipses happening on a supermoon night ! It’s no surprise that market paid scant heed to Goldman chief’s cancer scare.

All this happening as equities worldwide continue on their precipitous drop and not a single currency in the world gained on the US dollar except for the ruble .. and Gold. Even bonds gave little comfort, except for the safest names from the safest countries as EM and high yields sold off.

Cannot say it has been a pleasant week with Singapore literally cloaked in a haze of grey despair.

At this rate, some capitulation would be likely in the very near future for we have not had a major bankruptcy this week with the last one on 16 Sept out of Samson Resources for US$ 4.9 bio.

While it would do to heed the Fed that they will hike before 2015 is over, equity indices have broken on a downtrend which makes it double hard for analysts, unsure if the move is technical or Fed inspired because the expectations are even lower now for rate hikes than they were just 3 months ago.


Bonds In Conversation : Ending The Quarter On High Drama


The key takeaway from Yellen’s speech at 5 am this morning is that the Fed recognises that a delay in hiking could be disastrous for the markets.

Norway does not think so and cut their rates again yesterday to 0.75% along with Taiwan and US swaps are now officially lower than treasuries, a rare phenomenon that typically signals a liquidity crunch ahead.

We can conclude that markets are running ahead on the doom and gloom story and losing their faith in the central bankers because rate cuts are not going to create jobs and boost incomes.

And given that sentiments have been fluctuating between either risk-on or risk-off for the past 7 years, we are clearly in risk-off zone although capitulation is likely to be contained given that risk is better managed these days.

The main risk remains that of the black swan events – the defaults. As such, we can continue to expect a painful grind into the next quarter with the fear of the self fulfilling prophecy to strike.

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In the meantime, enjoy the full moon, high drama and the month end that surely cannot end too badly.


Singapore rates, unlike the US, have gone in opposite direction to bond yields, rising 0.06 to 0.18% for the week while long end bonds rallied.

Sibor continues to steamroll higher like a runaway train with the 1M Sibor setting a new 6 year record today, an anomaly or an opportunity ?

As I said on Tues, “Going ahead, I would expect government bonds to outperform corporates, seeing that most corporate bonds have outperformed the govis this year although credit quality has not improved much, globally…. A new 2Y SGS auction coming on 28 Sept and no maturing amount, that would probably keep the prices of the 2-5Y papers soft for some buying opportunity as this would be the final auction for the year with only 1 other mini bond auction next month.”

Indon USD credits were mostly decimated this week along with Malay names like 1MDB (again due to news of a new protest coming up ?), hogging the biggest losers list, on no account of the haze. SGD credits have, however, remained nonplussed with prices barely changed except for specific names such as Far East Horizon (BBB-) after its outlook was changed to negative by the S&P. Thus Far East Horizon SGD bonds have come off by 1 cts on the news which yields higher than their comparable tenors in Mustafa, Sabana, Aspial, just to name a few. And for the rest of our amazing corporate bonds :

It is also worthwhile noting that Malaysian (A3/A-) 5Y CDS levels have exploded to 2.19%, a 6 year high and the USDMYR has not been higher since 1998, yet interestingly Cagamas SGD 1Y bond is just yielding 0.22% above swaps.

I will be looking to the moon for clues !

Leaving with the indicative prices.


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