BOND$ Inve$ting

[dappermen]

…pay out a coupon with a fixed maturity so unless the company go bankrupt/default you will always get your money back.

Problem is investment grade bonds have very low yields now, only place to get higher yield is in junk bonds but those have higher default risk

Tks for sharing!!! And it is extremely low yields….. less than 2%!

But perpetuals are not redeemable rite?
Perpetual bonds, also known as perps or consol bonds, are bonds with no maturity date.just that they pay a steady stream of interest in forever.
Because of the nature of these bonds, they are often viewed as a type of equity…

 

[Okenba]

I just want to demo it is possible to generate passive from bonds and possibly have a discussion about it so I thought no point preesenting all these and have a chunky table. One time I even calculated and track the portfolio's duration but has since stopped doing so. These days I don't even track the ups and downs of the individul bond prices cause I like to believe I have done the necessary risk management at curation stage - notice there is not a single USD China real estate bond in my portfolio eventhough the platform is full of them & I only trade the bonds if rebalancing or fundamentals changed.

My understanding of bonds is that it is just another asset class.
I also have the impression that it typically requires high capital to buy the bond itself, and so is more assessible for investors to buy through Bond ETFs. (Although I think there are differences.)
However, with current low interest rates, most bonds (Govt & Corp Bonds) are highly priced and have low yields.
If they promise high yields (Junk bonds), likely that they are engaging in risky business to get those yields and so, the bonds will also carry that risk.
It is also my impression that, generally speaking, for the same amount of risk, equities tend to perform better.

I use very hesitant wording because I really am very unfamiliar with bonds. Would be happy to be corrected and learn more.

 

[0218crawford]

For me, its not a matter of THIS vs THAT. I am also into stocks, property etc. As long as I can model an asset’s valuation and discover its ‘true’ value, I am keen. At least I know I am not overpaying for the income stream generated by the asset and also there is a chance for me to make money on a mispriced asset. I find Bond valuation to be the easiest to do among the various asset classes.

Some people hated the local bourse & only invest in US stocks, some people are more comfortable at home. Why not invest in both & more? For me, I also invest in HKEX and BURSA. For properties, as long as the numbers click, it does not matter whether it is residential, commercial or even industrial.

The only thing I don’t really invest is crypto as I do not know how to value it. If one day some smart people kind enough to share a crypto pricing model much like what Black & Sholes did back in 1973, you will see me taking positions in cryptos also.

 

[dappermen]

we surely can mix& match our asset allocation into three broad groups:
• Defensive portfolio: 70 per cent to 100 per cent in bonds.
• Balanced portfolio: 40 per cent to 60 per cent in stocks.
• Growth portfolio: 70 per cent to 100 per cent in stocks.







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“Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure or nothing.“

—Helen Keller

 

[0218crawford]

But perpetuals are not redeemable rite?
Perpetual bonds, also known as perps or consol bonds, are bonds with no maturity date.just that they pay a steady stream of interest in forever.
Because of the nature of these bonds, they are often viewed as a type of equity…

Can be 'redeemed' by yourself - just sell especially when interest rate falls and perps price increase.
Or typically by companies at reset date. Most issuer will redeem their perps by issuing new ones.

issuer can choose not redeem and just reset. not common but still have - recent cases - ascott residence trust & lippo mall which did not redeem and just reset the perp.

 

[dappermen]

tks 4 guiding! but somehw i felt the pr movemt quite Limited ....

 

[0218crawford]

For those holding the fraser 3.65% retail bond, its coupon payday today!

 

[0218crawford]

The 2.7% Temasek was trading around 1.4% for a while. Yesterday price went up to 1.035 and yield now around 0.9%. Interesting considering that the 1.8% is trading tomorrow.

 

[tangent314]

Maturity in just under 2 years. 0.89% is comparable to SGS bonds maturing around that same period NX13100H 0.72%, N519100A 0.89%

 

[neanea]

The 2.7% Temasek was trading around 1.4% for a while. Yesterday price went up to 1.035 and yield now around 0.9%. Interesting considering that the 1.8% is trading tomorrow.

your spreadsheet get prices automatically?

 

[0218crawford]

your spreadsheet get prices automatically?

I just enter the price manually, rest of calculation is automated.

No link between spreadsheet and SGX prices. Actually no need for other scraping codes as there are only 7 counters and they don't change much in price.

 

[Cardax11]

any views on bond funds? more diversified..

 

[0218crawford]

any views on bond funds? more diversified..

yep. within the fund and across asset classes.
best way to invest into one is to do RSP as IR is expected to go up.
not all bond funds same. need to do homework to suit your own investment needs.

 

[Cardax11]

yep. within the fund and across asset classes.
best way to invest into one is to do RSP as IR is expected to go up.
not all bond funds same. need to do homework to suit your own investment needs.

how about leveraging up on bond funds?
stable or risky move?

 

[0218crawford]

how about leveraging up on bond funds?
stable or risky move?

Those who don't understand how bond funds are constructed and the relationship between IR and bond yields will say NO.

Those who do, its just another means to profit from the spread.

So depends on which category you belong to.

 

[Cardax11]

Can you help elaborate on IR and bond yields on a bond fund?
Textbook answer IR goes up, bond price fall, yield goes up

However, this only applies if you are trading a single bond.
If you are holding the bond to maturity, does the IR movement even matter?
i.e bond prices may fall temporary, but you will still receive the same initial coupon payment and receive PAR at maturity

For a bond fund, there are hundreds of bonds in the portfolio. Assuming on average, there will be a few bond maturing each month and receiving back PAR value. The portfolio manager will then recycle the funds into another bond at the current market rate. Although there might be short term impact.... but over the longer term, this should all be smooth out?

 

[0218crawford]

You got the moving parts right.

My primary concern for single bond (senior or perp) is credit risk - will company still be there tomorrow?

Interest rate risk is secondary. My aim is to collect the coupons for income. I don't really care prices change due to IR change as I am not liquidating the bonds for income, emergency or liquidity needs. For individual bonds, wIth maturity and perp resets, the coupons will eventually keep pace with rising IR - new bonds get issued with higher coupons and perps are reset to pay higher coupons.

Similar to the purest form of dividend investing - As long as the blue chip pays dividends consistently, I don't really care whether price goes up or down , in fact if price goes down, I load up more. In other words, price only comes in for rebalancing purpose.

Buying Bond funds can be viewed as holding a perp with no reset/recall feature. Credit risk is low unless everything is invested in evergrande bonds - you get the point. But if the basket of bonds has long maturity, then prices can drop quickly and stay depressed longer if IR continues to rise. If worry about IR, can select funds with lower duration or do RSP.

 

[Cardax11]

Thanks for the response
I am vested in leveraged bond funds and prices have been on the dip due to recent fears on IR increase.
However, my views are as above, the current price dip is temporary and should recover when the existing bonds are rolled over. (unless the fund manager screws up and sell at a loss before maturity)

My holding period on the bond funds is forever, hence just trying to profit from the spread.

 

[justubes]

Thanks for the response
I am vested in leveraged bond funds and prices have been on the dip due to recent fears on IR increase.
However, my views are as above, the current price dip is temporary and should recover when the existing bonds are rolled over. (unless the fund manager screws up and sell at a loss before maturity)

My holding period on the bond funds is forever, hence just trying to profit from the spread.

However, regular fixed coupons can be attractive.

If the funds does not perform, it will pay coupons from NVA which is like paying you from you capital right?

 

[yongsaver]

However, regular fixed coupons can be attractive.

If the funds does not perform, it will pay coupons from NVA which is like paying you from you capital right?

no la. me think u confused with equity funds that pays regular distribution. if dividends paid by companies drop, funds got to sell some shares to make up for it. don''t think bond funds work like that as unlike dividends which may or may not be paid, coupons is fixed and has to be paid unless company go bust.