Company bonds

focus1974

focus1974

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uh. .. pleasant experience...
buy already got coupon payment.
end of story.
 
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whitesand

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Just to add:

not only the min investment amt is higher, there is also the issue of lack of liquidity and transparency of the current market price. This is can be an issue if you want to get out from this before its maturity.

SpeedingBullet said:
It depends, usually the gd ones are institutional offers only, and it isnt on SGX, only OTC between banks. I'm talking abt the $100k/$250k per lot type of corp bonds.
Click to expand...
 
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limster

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SpeedingBullet said:
It depends, usually the gd ones are institutional offers only, and it isnt on SGX, only OTC between banks. I'm talking abt the $100k/$250k per lot type of corp bonds.
Click to expand...

brokerages are also selling. At least, the brokerages that have links to banks are also selling non-SGX listed corp bonds.
 
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limster

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If you can borrow at an interest rate lower than the bond coupon and the company is relatively safe, it is more or less 'free' money in exchange for taking on the risk of default.

Sophisticated investors with even more risk will borrow money to buy bonds that return more than the borrowing cost, and then use these bonds as security for their margin trading account.
 
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wondrdoggie

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limster said:
If you can borrow at an interest rate lower than the bond coupon and the company is relatively safe, it is more or less 'free' money in exchange for taking on the risk of default.

Sophisticated investors with even more risk will borrow money to buy bonds that return more than the borrowing cost, and then use these bonds as security for their margin trading account.
Click to expand...

This is what a lot of institutional or accredited investors are doing. Banks are giving up to 80% leverage on some local bonds, you just pay 20% and you outsize your returns that way. Eg. The 10 year Capitalmall Trust bond at 3.6% coupon bond at 80% leverage, you only pay 20% which is $50k. Here is how it works:

Coupon per year = 3.6% x $250k = $9k
Cost of 80% borrowing = 80% x $250k x say 1.5% interest rate (you can get lower than this actually) = $3k
Nett gain = $9k - 3k = $6k
Your actual cash investment is $50k (20%)
This means your leverage return is $6k/$50k = 12%

Your bond is your collateral or if you have other assets with the bank, you can also leverage using those as collateral.
 
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icicic

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wondrdoggie said:
This is what a lot of institutional or accredited investors are doing. Banks are giving up to 80% leverage on some local bonds, you just pay 20% and you outsize your returns that way. Eg. The 10 year Capitalmall Trust bond at 3.6% coupon bond at 80% leverage, you only pay 20% which is $50k. Here is how it works:

Coupon per year = 3.6% x $250k = $9k
Cost of 80% borrowing = 80% x $250k x say 1.5% interest rate (you can get lower than this actually) = $3k
Nett gain = $9k - 3k = $6k
Your actual cash investment is $50k (20%)
This means your leverage return is $6k/$50k = 12%

Your bond is your collateral or if you have other assets with the bank, you can also leverage using those as collateral.
Click to expand...

Caveat that you get whack 2x if interest rates go up, service of loan becomes more expensive at the same time that bond price drops. Ceteris paribus
 
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wondrdoggie

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icicic said:
Caveat that you get whack 2x if interest rates go up, service of loan becomes more expensive at the same time that bond price drops. Ceteris paribus
Click to expand...

Very true, good call. Rates are not expected to raise much within next 1 year. Which is why my bonds are mainly <3 years maturity. Also, I usually keep bonds till maturity so secondary market fluctuations don't bother me much though it does affect my portfolio value meanwhile. And mainly only investment grade ones, some junk but keep those at a low number.

I also buy foreign bonds in currencies which are expected to appreciate, like the Chinese yuan ones. So some potential for upside.
 
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neanea

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What is the name of such product?

wondrdoggie said:
This is what a lot of institutional or accredited investors are doing. Banks are giving up to 80% leverage on some local bonds, you just pay 20% and you outsize your returns that way. Eg. The 10 year Capitalmall Trust bond at 3.6% coupon bond at 80% leverage, you only pay 20% which is $50k. Here is how it works:

Coupon per year = 3.6% x $250k = $9k
Cost of 80% borrowing = 80% x $250k x say 1.5% interest rate (you can get lower than this actually) = $3k
Nett gain = $9k - 3k = $6k
Your actual cash investment is $50k (20%)
This means your leverage return is $6k/$50k = 12%

Your bond is your collateral or if you have other assets with the bank, you can also leverage using those as collateral.
Click to expand...
 
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