Emerging market Bond fund

[jt6118]

Hi, I am a noob here. poured my entire university fees into the above. Now the price has been dropping real bad for the past months. Any advice?

 

[Shiny Things]

Hi, I am a noob here. poured my entire university fees into the above. Now the price has been dropping real bad for the past months. Any advice?

Yeah: wait until October, then cut your losses.

Bonds have been clobbered right around the world for the last couple of months, because of the upcoming decision by the Federal Reserve in America to reduce the volume of bonds that they've been buying (the so-called "taper).

Emerging-market bonds have been especially hard hit, because they're seen as particularly sensitive to changes of investor sentiment - and if those bonds are denominated in local currencies, they've been hit doubly hard by the depreciation of the currencies alongside the depreciation of the bonds.

Market expectation at the moment is for the taper to kick in in September, but there's a few people who think the Fed will wait until December. If the taper does start in September, market reaction will be minimal; but if they hold off three months, bonds should have a quick blip higher; either way, you can sell into that and cut your losses.

Take your money and stick it in a bank account instead. If that's your college fees, you can't afford to lose any of your capital - chasing income, as you've learned, is greedy and dangerous.

 

[lusunshine]

Yeah: wait until October, then cut your losses.

Bonds have been clobbered right around the world for the last couple of months, because of the upcoming decision by the Federal Reserve in America to reduce the volume of bonds that they've been buying (the so-called "taper).

Emerging-market bonds have been especially hard hit, because they're seen as particularly sensitive to changes of investor sentiment - and if those bonds are denominated in local currencies, they've been hit doubly hard by the depreciation of the currencies alongside the depreciation of the bonds.

Market expectation at the moment is for the taper to kick in in September, but there's a few people who think the Fed will wait until December. If the taper does start in September, market reaction will be minimal; but if they hold off three months, bonds should have a quick blip higher; either way, you can sell into that and cut your losses.

Take your money and stick it in a bank account instead. If that's your college fees, you can't afford to lose any of your capital - chasing income, as you've learned, is greedy and dangerous.

Agree. Cut your losses when there is a technical bounce back. The longer you hold on it the more losses like to incur. The long term view on emerging market bonds are very very bearish.

 

[sAVaGEmP5]

That depends on which emerging markets your bond funds are into.

There are differences with eg. China, Vietnam vs India, Brazil.

There are also money flows where a large number of investors with huge funds pull out, only to realize it isn't that bad and start buying in again. Think I have said this somewhere...

If you can, my suggestion is "Hold", and perhaps buy into some other developed markets bond fund as well for a global coverage.

 

[chopra]

is there "maturity" in such fund?

 

[Shiny Things]

Not really. Bond funds have a duration and interest rate risk and credit risk like a cash bond, but they don't have a fixed maturity and they don't redeem at 100.

 

[chopra]

ahhhh that hurts.

but given emerging bonds are at quite a high yield now, maybe it's worthwhile to hold.

wait for yield to drop by 50percent

 

[SpinFire]

UOB was aggressively selling this fund to its customers few months back. I wonder how their relationship managers are handling worried and angry customers now. It currently yields about 5% but the annual management fee is approximately 2%.

 

[Lasogette]

UOB was aggressively selling this fund to its customers few months back. I wonder how their relationship managers are handling worried and angry customers now. It currently yields about 5% but the annual management fee is approximately 2%.

have a friend who has poured in a large sum (low 6 digit) into this bond fund from UOB and had gone in at the high. Since then it had dropped almost 7%. I calculated the yield it stands around 5.6% from the price entered. I believe the risk for holding an EM bond should yield more than 5.6%.

 

[Epps_Sg]

is there "maturity" in such fund?

If the bonds in the fund is short term like 1 to 3 years, then these short term bonds can be held to maturity. Short term bonds are less sensitive to interest rates rising as maturing bonds can be replaced with newer higher interest rates bonds.

 

[lusunshine]

ahhhh that hurts.

but given emerging bonds are at quite a high yield now, maybe it's worthwhile to hold.

wait for yield to drop by 50percent

Yield drop by 50% means bond price needs to go up by 50%, how can this be possible under current market conditions? You wait long long

 

[lusunshine]

UOB was aggressively selling this fund to its customers few months back. I wonder how their relationship managers are handling worried and angry customers now. It currently yields about 5% but the annual management fee is approximately 2%.

You think those UOB RMs really care about it? As a customer, you already signed all those factsfind, financial analysis, risk profiling and disclosure forms, no matter how worried and angry you are, still no use

 

[SpinFire]

You think those UOB RMs really care about it? As a customer, you already signed all those factsfind, financial analysis, risk profiling and disclosure forms, no matter how worried and angry you are, still no use

Yeah. Those RMs happily enjoying the 3-5% commission.

 

[Dividends Warrior]

Hi, I am a noob here. poured my entire university fees into the above. Now the price has been dropping real bad for the past months. Any advice?

U used your university fees for investment?!?!??!!

 

[Shiny Things]

Yield drop by 50% means bond price needs to go up by 50%, how can this be possible under current market conditions? You wait long long

Not quite.

Dollar-denominated EM bonds (I'm using the JPM EMBI Global index here, for those who care) are yielding about 5% right now, with an average duration of about 7 years.

For yields to halve (to 2.5%), bond prices would have to go up by 2.5%*7 = 17.5%, give or take.

Admittedly, that's never going to happen (mostly because USD interest rates will go up eventually, and the yields on this EM rubbish will go up along with it).

 

[jt6118]

U used your university fees for investment?!?!??!!

ya... thought should be quite safe since its bond...:/

 

[Shiny Things]

ya... thought should be quite safe since its bond...:/

Yeah... as you've learned, there are bonds, and then there are bonds.

The safe bonds you were probably thinking of are SGS - Singaporean government bonds. These have no currency risk, no credit risk, only interest rate risk (and, if you hold them to maturity, not even that).

The bonds you actually bought (you knew this when you signed the papers, right?) are emerging-market bonds - issued by countries that have dubious credit ratings, volatile currencies, and volatile interest rates. These bonds are not safe by any stretch of the imagination.

 

[SpinFire]

If he had bought into bonds, it would be safe as he can get back 100% principle at maturity (assume no default). The thing about bond funds is that there's a risk of capital loss, which makes it similar to Reits and stocks. There's no maturity date when the holder can get back full capital

 

[jt6118]

yea.. i didn realise. so these bonds are considered junk bonds? Apparently different from those higher grade bonds i learned in textbooks. ouch. I thought local banks would be selling something with more credit worthy. buttoo bad i already signed the forms liao

 

[lusunshine]

yea.. i didn realise. so these bonds are considered junk bonds? Apparently different from those higher grade bonds i learned in textbooks. ouch. I thought local banks would be selling something with more credit worthy. buttoo bad i already signed the forms liao

Where got textbooks only teach you higher grade bonds but not junk bonds? Emerging market bonds are bonds issued by emerging countries but not necessarily be junk bonds as long as their credit rating are BBB and above. You must be never study hard, everyday sleep at class and night go chiong right?

Local bank would be selling something credit worthy? So fast you forgot minibond saga already?