Bonds

[knightdreamer]

recently quite number of bond post

 

[wondrdoggie]

SGD bonds not that hot now. The private banks are all calling for US high yield for 2015. Or if you have like a lot of courage and patience, you can look into picking up some Brazilian oil bonds which are now in the 50s range.

Don't forget to hedge forex if you buy non sgd bonds.

Btw, otc bond trading is super opaque in SG. A few guys on the phone haggling actually. I don't trade bonds so all I care about is default risk and just collect my coupons till maturity.

 

[MisterLim001]

SGD bonds not that hot now. The private banks are all calling for US high yield for 2015. Or if you have like a lot of courage and patience, you can look into picking up some Brazilian oil bonds which are now in the 50s range.

Don't forget to hedge forex if you buy non sgd bonds.

Btw, otc bond trading is super opaque in SG. A few guys on the phone haggling actually. I don't trade bonds so all I care about is default risk and just collect my coupons till maturity.

please educate more...thanks

 

[Shiny Things]

SGD bonds not that hot now. The private banks are all calling for US high yield for 2015. Or if you have like a lot of courage and patience, you can look into picking up some Brazilian oil bonds which are now in the 50s range.

Yikes; there's high yield, and then there's Brazilian energy-sector bonds. They've got that ugly mix of currency risk, commodity price risk, sovereign risk (Petrobras is under investigation for systematically bribing basically every important person in Brazil), and common-or-garden can't-pay-the-bills credit risk.

Courage and patience is definitely the keyword there. Also "I-wouldn't-touch-them-with-a-bargepole" is the other keyword...

 

[wondrdoggie]

Yikes; there's high yield, and then there's Brazilian energy-sector bonds. They've got that ugly mix of currency risk, commodity price risk, sovereign risk (Petrobras is under investigation for systematically bribing basically every important person in Brazil), and common-or-garden can't-pay-the-bills credit risk.

Courage and patience is definitely the keyword there. Also "I-wouldn't-touch-them-with-a-bargepole" is the other keyword...

Hahaha! Yeah. I know people who own petrobas bonds. Took more than a haircut.

 

[wondrdoggie]

please educate more...thanks

Which part? Basically bonds are an important part of a diversified portfolio. They are debt instruments and moves opp of stocks. The more conservative you are, the more you should own bonds. It's also known as fixed income. You basically get paid a coupon rate (around 3-7% pa) twice a year. At the end of maturity you get back your principle. The bonds are traded on a secondary market which in sg is otc so no transparency at all. In the secondary market, the price of the bond will fluctuate above or below issue price of $1.

The risks you take are mainly default risks (company cannot repay principle or coupons) and currency risks if you bought in non sgd. Issuers of bonds rated BBB and up are considered investment grade but will come with lower coupon rates. Anything below that grade is considered junk but comes with higher coupons. There are different varieties of bonds - vanilla, convertible, perpetual. You would care the structure of the bond, coupon rate, ratings, issue size, issuer, use of money, maturity duration, any other terms.

But bonds are 250k a pop in sg so not many pple can buy them, only mas accreditated investors. You can however still access bonds via bond funds. Pay a fee of course to fund but to me, it's worth it.

 

[MisterLim001]

Which part? Basically bonds are an important part of a diversified portfolio. They are debt instruments and moves opp of stocks. The more conservative you are, the more you should own bonds. It's also known as fixed income. You basically get paid a coupon rate (around 3-7% pa) twice a year. At the end of maturity you get back your principle. The bonds are traded on a secondary market which in sg is otc so no transparency at all. In the secondary market, the price of the bond will fluctuate above or below issue price of $1.

The risks you take are mainly default risks (company cannot repay principle or coupons) and currency risks if you bought in non sgd. Issuers of bonds rated BBB and up are considered investment grade but will come with lower coupon rates. Anything below that grade is considered junk but comes with higher coupons. There are different varieties of bonds - vanilla, convertible, perpetual. You would care the structure of the bond, coupon rate, ratings, issue size, issuer, use of money, maturity duration, any other terms.

But bonds are 250k a pop in sg so not many pple can buy them, only mas accreditated investors. You can however still access bonds via bond funds. Pay a fee of course to fund but to me, it's worth it.

any bonds in any industry to look out for?

 

[wondrdoggie]

any bonds in any industry to look out for?

This question is a bit hard to answer. Hahaha.. Like asking which stock to buy. Every bond has its risk. So depends on the type of portfolio you want. I would recommend a spread of 80% investment grade bonds across various industries. Don't just buy bank bonds or real estate bonds. The other 20% can buy junk to get more yield overall. Current situation I would not buy long dated bonds definitely less than 3 years for me. If you are in the market to buy individual bonds, you should have access to probably private banks. So get your banker to give you some options based on the type of yield you want. They will help you do research and make recommendations. Then you check out the prospectus and see if you like the issue.

If you are a retail investor, you can also buy perptual bonds like Genting which if I remember correctly pays 4.25%? Or buy bond funds, research on Bloomberg.

 

[The Accountant]

Current situation I would not buy long dated bonds definitely less than 3 years for me.

Ah. I see you have the same view as I. But the thing is, short term bond often comes with a low yield. having a bond/ cash allocation of 40%, I want something to stay in line with our flation. I ended up taking more risk in bonds to make up for the yield by taking up half of my bond allocation to the united SGD bond class A. Its hedged to SGD too.

Not sure if I made the right move because for those who made this tactical shift to short dated bonds in 2014 suffered in terms of opportunity cost :|

 

[Shiny Things]

Hahaha! Yeah. I know people who own petrobas bonds. Took more than a haircut.

Could be worse - they could have owned OGX.

 

[wondrdoggie]

Ah. I see you have the same view as I. But the thing is, short term bond often comes with a low yield. having a bond/ cash allocation of 40%, I want something to stay in line with our flation. I ended up taking more risk in bonds to make up for the yield by taking up half of my bond allocation to the united SGD bond class A. Its hedged to SGD too.


Yeah, agree with you on the low yields. But I guess it depends on how you see bonds. I see them as a counter balance of risk to equities. I approach my whole portfolio as a whole. Some components will be high risk (PE funds, individual company investments, ELNs, FCNs, short term option trades), some will be moderate (dividend stocks, blue chips), some will be 'safer' ones like high grade bonds. I also have hedge funds whose aim is to provide stability to my portfolio. I aim for average returns across all asset class, doesn't matter if the bonds only yield 3-4%. Eg, a 40/60 bond/equities split should give you around 5-8%in 2014 (my guess). You can get better bond yields by going for US bonds or even Chinese bonds. The banks are bullish on the USD and by peg, also the HKD, so you might also want to consider doing spot conversions instead of hedging, that way, you can get some upside in forex.



Not sure if I made the right move because for those who made this tactical shift to short dated bonds in 2014 suffered in terms of opportunity cost :|

Bonds in 2014 suffered generally, I also got a light haircut (thank goodness). I know when we calculate returns and current worth, we take market prices. But at the back of my head, I also know that I will get my principle back unless a default happens. So I am not too concerned with the fluctuations in the secondary market meanwhile.

Let's hope 2015 is a better year like 2013!

 

[The Accountant]

I approach my whole portfolio as a whole. Some components will be high risk (PE funds, individual company investments, ELNs, FCNs, short term option trades), some will be moderate (dividend stocks, blue chips), some will be 'safer' ones like high grade bonds. I also have hedge funds whose aim is to provide stability to my portfolio. I aim for average returns across all asset class,

I never actually thought of hedge fund to add stability, now that you mention i might go and take a look at them. I agree with you very much about average return across all asset class. =)

You can get better bond yields by going for US bonds or even Chinese bonds. The banks are bullish on the USD and by peg, also the HKD, so you might also want to consider doing spot conversions instead of hedging, that way, you can get some upside in forex.

Actually the bond are money which i need in case of emergency which explains why my bond allocation is higher than most people. So i choose to take currency risk only in equity. But thanks for the insight on the dollar, at least i know my shift to global equity is right! =)

Let's hope 2015 is a better year like 2013!

Yeah! Lets hope 2015 is a good year for investors.

Sorry to hijack this tread from misterlim. I will return this back to you. =)

Happy Luna New Year everyone!

 

[wondrdoggie]

Actually the bond are money which i need in case of emergency which explains why my bond allocation is higher than most people. So i choose to take currency risk only in equity. But thanks for the insight on the dollar, at least i know my shift to global equity is right!

Actually if your bonds are a way to park emergency funds, it might be risky liquidity wise because you may not be able to find a buyer at short notice at the price you want to sell. Emergency funds should be parked at highly liquid and accessible products like money market. Pitiful returns though...

 

[The Accountant]

Actually if your bonds are a way to park emergency funds, it might be risky liquidity wise because you may not be able to find a buyer at short notice at the price you want to sell. Emergency funds should be parked at highly liquid and accessible products like money market. Pitiful returns though...

Oh. I didn't realised that. Its not liquid Even for a bond fund or etf?

Thanks for highlighting.

 

[hfts_james]

what about US futures bonds? worth considering?

 

[wondrdoggie]

Oh. I didn't realised that. Its not liquid Even for a bond fund or etf?

Thanks for highlighting.

Bond funds and ETFs are fine, usually can liquidate in a day. Was referring to individual bonds..

 

[The Accountant]

Bond funds and ETFs are fine, usually can liquidate in a day. Was referring to individual bonds..

Ah I see. Thanks again for your input. I didn't realised the word "fund" went missing when I was typing the fund name in my post above from my phone. :x

I wish you good fortune for the year of 2015!