Corporate Bond Discussion

[sgdividends]

Hey Yywhn ,

I was also looking at bonds but gave up when I couldn't see the transparency, I don't have bloom erg terminal. Then my bankers offer me but again I also scared as need 250k minimum and no transparency..Haha chicken ****.

I was also looking at Maybank KE where they allow u to leverage up bonds. Again need 250k.

But then Maybank KE got something special. They allow u to loan 2.28% to leverage on certain reits . I didn't do it as chicken hearted.i think 50% loan to value if I remember. Can go check.no Min sum. I ask them how long they will alert us if loan rate change...they say usually 1 month notice......

 

[limpoop]

If you buy a bond now, at maturity the price is below IPO of $100, will the issuer redeem it at $100?

 

[koja6049]

If you buy a bond now, at maturity the price is below IPO of $100, will the issuer redeem it at $100?

they must. it is a bond, not stocks

 

[OngHuatHuat]

Yes. If not the issuer will be deem default.

If you buy a bond now, at maturity the price is below IPO of $100, will the issuer redeem it at $100?

 

[OngHuatHuat]

Yeah the Maybank Kim eng promo quite attractive actually. I am thinking about it.

I think bond harder to leverage, is it? Is there any other banks that allow you to leverage for bonds? That means it is leverage on leverage already.

Reits carry stock market risk, for bonds, as long as the issuers don't bankrupt, it will be fine.

Hey Yywhn ,

I was also looking at bonds but gave up when I couldn't see the transparency, I don't have bloom erg terminal. Then my bankers offer me but again I also scared as need 250k minimum and no transparency..Haha chicken ****.

I was also looking at Maybank KE where they allow u to leverage up bonds. Again need 250k.

But then Maybank KE got something special. They allow u to loan 2.28% to leverage on certain reits . I didn't do it as chicken hearted.i think 50% loan to value if I remember. Can go check.no Min sum. I ask them how long they will alert us if loan rate change...they say usually 1 month notice......

 

[BBCWatcher]

Reits carry stock market risk....

It's more than that. They come with sector-specific risks associated with real estate. Even if you buy a global REIT index fund that's still analogous to buying a global restaurant stock index fund, or a global vehicle manufacturer stock index fund, or a global Internet company stock index fund. It's only one sector, at best. So it's an intra stock market risk.

 

[OngHuatHuat]

That's why I am looking for corporate bonds for some diversification purpose. Headache.

It's more than that. They come with sector-specific risks associated with real estate. Even if you buy a global REIT index fund that's still analogous to buying a global restaurant stock index fund, or a global vehicle manufacturer stock index fund, or a global Internet company stock index fund. It's only one sector, at best. So it's an intra stock market risk.

 

[wealth_farmer]

yyhwin, I saw you listed a USD corporate bond. If so, would you consider an ETF like VDCP.LN which is made up of USD denominated IG corp bonds?

I'm thinking of adding that to diversify a little bit away from holding pure A35.SI. I have neither the time to bond-pick nor the capital to go 250k a pop into individual corp bonds so ETF works better for me to get exposure.

 

[OngHuatHuat]

I will research on that.
Usd corporate bonds are normally higher yield compare to sgd denominated corporate bonds for similar investment grading.

Due to huge capital outlay involved, so now I am actually looking to buy bonds with big sovereign fund backing or big corporations.

yyhwin, I saw you listed a USD corporate bond. If so, would you consider an ETF like VDCP.LN which is made up of USD denominated IG corp bonds?

I'm thinking of adding that to diversify a little bit away from holding pure A35.SI. I have neither the time to bond-pick nor the capital to go 250k a pop into individual corp bonds so ETF works better for me to get exposure.

 

[BBCWatcher]

I'm interested in YYhwin's views on that question, too, but I have an opinion.

For non-U.S. persons interested in corporate bonds, I like that fund. It's a good, low cost fund for what it is. The question is really whether that fund makes sense for you and, if so, how much it does. That'll depend on your time horizon.

If you're in your 50s or older, and saving for your retirement, I'd say that's probably reasonable. Dollar cost average into that fund, keep it up over a long period, and relax. You'll have some currency risk, but with dollar cost averaging over a long enough time horizon, with a slow steady pace of withdrawals in the future, and with your A35 and CPF positions, I don't think currency is much of a risk.

If you're younger than that, I think it'd be much better to dollar cost average into equities, for example into VWRL.LN. I'm assuming A35 and CPF represent the rest of your other savings, or at least most of it.

 

[flikmy]

yyhwin, I saw you listed a USD corporate bond. If so, would you consider an ETF like VDCP.LN which is made up of USD denominated IG corp bonds?

I'm thinking of adding that to diversify a little bit away from holding pure A35.SI. I have neither the time to bond-pick nor the capital to go 250k a pop into individual corp bonds so ETF works better for me to get exposure.

VDCP.LN looks like quite an interesting ETF. The expense ratio is smaller than CORP.LN which is a similar offering from iShares. Dividend yield is higher as well. However, the dividend payout is done monthly on VDCP which might be an issue for those who like to re-invest the dividends.

On a separate note, the yield on an ETF like this is still on the low side as compared to what yyhwin has been looking at. For example, the HSBC perp callable in 2021 is giving 4.9% while this is giving 3.0% (with average maturity of 10 years). Even the DBS retail perp callable in 2020 will give 2.9%. But this ETF will probably give you a lot more peace of mind compared to a single counterparty defaulting.

On another note, there's been more "talk" about bond liquidity especially in bond etfs. Bonds aren't very liquid but etfs continue to trade in narrow bid offers. Once a crisis hits, we don't know for sure how these bond etfs will trade as the underlying bonds themselves will have very little liquidity (unlike stocks). They're probably not great instruments to get out off when there's a crisis, but so are individual credit bonds.

 

[OngHuatHuat]

Which question you talk about?

I actually looking at higher yield but more risky corporate bond, may even invest in some big corporation subordinate bonds.

Reason why is because my exposure in equities is already pretty big, I plan to trim down part of my equities exposure. Furthermore, most of my equities are in banking,healthcare and properties.

I am currently 32 years old, so perhaps can afford to purchase a higher risk bond.

Do you have any big corporation's USA bonds in mind? But I look at the yield, seems pretty pathetic.

Another question:
IB doesn't offer perpetual bonds right? Coz I try to look for similar perpetual bonds offering in IB, I cannot seem to locate that.

I'm interested in YYhwin's views on that question, too, but I have an opinion.

For non-U.S. persons interested in corporate bonds, I like that fund. It's a good, low cost fund for what it is. The question is really whether that fund makes sense for you and, if so, how much it does. That'll depend on your time horizon.

If you're in your 50s or older, and saving for your retirement, I'd say that's probably reasonable. Dollar cost average into that fund, keep it up over a long period, and relax. You'll have some currency risk, but with dollar cost averaging over a long enough time horizon, with a slow steady pace of withdrawals in the future, and with your A35 and CPF positions, I don't think currency is much of a risk.

If you're younger than that, I think it'd be much better to dollar cost average into equities, for example into VWRL.LN. I'm assuming A35 and CPF represent the rest of your other savings, or at least most of it.

 

[OngHuatHuat]

Thanks for the information. I never thought of that before.

VDCP.LN looks like quite an interesting ETF. The expense ratio is smaller than CORP.LN which is a similar offering from iShares. Dividend yield is higher as well. However, the dividend payout is done monthly on VDCP which might be an issue for those who like to re-invest the dividends.

On a separate note, the yield on an ETF like this is still on the low side as compared to what yyhwin has been looking at. For example, the HSBC perp callable in 2021 is giving 4.9% while this is giving 3.0% (with average maturity of 10 years). Even the DBS retail perp callable in 2020 will give 2.9%. But this ETF will probably give you a lot more peace of mind compared to a single counterparty defaulting.

On another note, there's been more "talk" about bond liquidity especially in bond etfs. Bonds aren't very liquid but etfs continue to trade in narrow bid offers. Once a crisis hits, we don't know for sure how these bond etfs will trade as the underlying bonds themselves will have very little liquidity (unlike stocks). They're probably not great instruments to get out off when there's a crisis, but so are individual credit bonds.

 

[limster]

if you purchase individual bonds you can construct your own bond ladder, especially if you forecast you need your principal back in a certain year (eg: property purchase). The bond ladder ETFs by iShares haven't really caught on.

Vanguard bond ETFs volume is so low compared to iShares (on some days volume seems non-existent that last I've checked..). High volume ETFs, you can get a price at the midpoint of the market makers bid-ask, low volume ETF, you usually have to take the market makers price.

 

[OngHuatHuat]

Thanks for the information.

I was looking at this one:
https://www.blackrock.com/sg/en/products/251722/ishares-barclays-usd-asia-high-yield-bond-index-etf

Yearly management fee is around 0.5% and need to pay 0.65% premium to NAV. Not too bad.

Bonds went up quite a lot too.

if you purchase individual bonds you can construct your own bond ladder, especially if you forecast you need your principal back in a certain year (eg: property purchase). The bond ladder ETFs by iShares haven't really caught on.

Vanguard bond ETFs volume is so low compared to iShares (on some days volume seems non-existent that last I've checked..). High volume ETFs, you can get a price at the midpoint of the market makers bid-ask, low volume ETF, you usually have to take the market makers price.

 

[BBCWatcher]

Once a crisis hits, we don't know for sure how these bond etfs will trade as the underlying bonds themselves will have very little liquidity (unlike stocks). They're probably not great instruments to get out off when there's a crisis, but so are individual credit bonds.

First of all, a crisis is precisely the worst time to sell. It might be a great time to buy.

Second, that hypothesis was recently well tested in 2007-2008. There was absolutely no problem selling this class of funds if that's what you wanted to do.

 

[OngHuatHuat]

Basically this is my finding so far:
1. Interactive Brokers, offers a wide range of bonds with low commission and holding fee, not sure about price transparency. Due to some unknown reasons, certain perpetual bonds that I am looking for are not available on this platform.

2. Bondsupermart(FSM). Reasonable sales charge, price transparent okay(for me), certain perpetual bonds I am looking for are available for sale.
Con: not comfortable with 0.05 % quarter platform fee, this is approximately 0.2 % per annum.
0.35% transaction fee.

3. Normal local brokarage. Price quoted is always many basis point higher than FSM price, higher sales charge at 0.7%, no platform fee.

So any opinion?

 

[Niaoson]

One thing about FSM that doesn't make sense to me is that only Al are allowed to make purchases less than $250k for wholesale bonds. Ironically, it is the non-AI people that need this function because we don't have $250k to throw each time

 

[OngHuatHuat]

This is to ensure price stability for wholesale bonds.
Normally when crisis strikes, retail investors are the first to run and throw in panic.

One thing about FSM that doesn't make sense to me is that only Al are allowed to make purchases less than $250k for wholesale bonds. Ironically, it is the non-AI people that need this function because we don't have $250k to throw each time

 

[homer123]

Is it more advisable to just purchase bonds listed in US?

This is the best site to search for US Corporate bonds.
http://finra-markets.morningstar.com/BondCenter/Default.jsp
I would advise buying US bonds using IB.. Many choices available, well regulated, low commission, no other fee and much more liquid.

Problem with buying bond in Spore is too costly .. most wholesale bonds listed are at 250K per lot, very difficult to diversify your risk..unless you have several millions to invest