BOND THREAD

[starrynight]

No lah, I think individuals like us should not buy SGS bonds cos the yield is not very meaningful. Personally I would go for a corporate bond from a solid company with something like 2 years left - the risk is practically speaking not much more, but returns can potentially be significantly higher.

As another forummer said, wait for correction. There might be one coming soon enough! When there is fear, the (good) baby will be thrown out with the bath water.

Hi starry

Many thanks for the above explanation. It has been very helpful.

It seems tough to get into the right bond as they can also go below water... Do u know why the government bond u mentioned dropped so much from 107 to 99.8? What is the yield... Seem attractive, you think?

Tks

[Iamderek]

What do a Relationship Manager do for the bank?

We keep clients happy and make money for the bank and them.

[Iamderek]

Thanks Derek

I'll start the ball rolling:

a. why do the banks need so long to come back to me with price quotes for bonds?

b. how long will the price quote from the bank be valid for usually? 1 hour for example? Does the bank need to re-confirm the order, i.e. can they reject my buy order based on the price they have quoted me?

c. how much on average does the bank make off each bond trade? I see a sizeable gap between the price the bank offers me and the price quoted on Bloomberg quite a lot of the time.

Long is relative - what is the amount of time you are referring to?

It depends - each bank operates slightly differently. It also depends on your relationship with your banker. Once the bank has quoted a price, it is firm.

Unable to disclose. This again depends on your relationship with your banker. As with all sales roles the relationship is key. For your information, the bid-offer prices shown be it on Bloomberg or Reuters is inaccurate as it does not account for the inputs of the trading desks of each respective bank.

[starrynight]

FYI. Details not yet known.

ESTABLISHMENT OF A US$2,000,000,000 EURO MEDIUM TERM NOTE PROGRAMME
Keppel Corporation Limited (the "Company") wishes to announce that its wholly-owned subsidiary, Keppel GMTN Pte. Ltd. (the "Issuer"), has on 31 January 2013, established a US$2,000,000,000 Euro Medium Term Note Programme (the "MTN Programme"). In connection therewith, Citigroup Global Markets Singapore Pte. Ltd., DBS Bank Ltd., Deutsche Bank AG, Singapore Branch and Goldman Sachs (Singapore) Pte. have been appointed to act as the joint arrangers and dealers of the MTN Programme.
Under the MTN Programme, the Issuer may from time to time issue notes in any currency as may be agreed between the Issuer and the dealer(s) for the relevant tranche of notes issued under the MTN Programme (the "Notes"). The payment of all amounts due in respect of the Notes will be unconditionally and irrevocably guaranteed by the Company.

The net proceeds from the issue of each tranche of Notes will be applied by the Issuer for working capital or general corporate purposes of the Company and its subsidiaries, or such other purposes as may be specified in the applicable final terms.
Application has been made to the Singapore Exchange Securities Trading Limited ("SGX-ST") for permission to deal in and quotation for any Notes which are agreed at or prior to the time of issue thereof to be so listed on the Official List of the SGX-ST. In addition, at the relevant time of issue of the Notes which are agreed at or prior to the time of issue to be listed on the Official List of the SGX-ST, a separate application will be made to the SGX-ST for the permission to deal in and quotation of such Notes on the Official List of the SGX-ST. Such permission will be granted when such Notes have been admitted to the Official List of the SGX-ST. The SGX-ST assumes no responsibility for the correctness of any of the statements made or opinions expressed or reports contained herein. Admission to the Official List of the SGX-ST and quotation of any Notes on the SGX-ST is not to be taken as an indication of the merits of the Company, its subsidiaries, its associated companies, the MTN Programme, any Notes or of the merits of investing in any Notes.
By Order of the Board

Caroline Chang / Kenny Lee Company Secretaries
31 January 2013

No lah, I think individuals like us should not buy SGS bonds cos the yield is not very meaningful. Personally I would go for a corporate bond from a solid company with something like 2 years left - the risk is practically speaking not much more, but returns can potentially be significantly higher.

As another forummer said, wait for correction. There might be one coming soon enough! When there is fear, the (good) baby will be thrown out with the bath water.

[starrynight]

Long = 2 / 3 hours. As a customer, one would think that the prices are real-time, i.e. you can call the RM and he should be able to quote you there and then. The fact that we have to wait to get a price causes one to suspect that the bank side is calculating how to maximise the profit from the customer.

Thanks for the insight.

Long is relative - what is the amount of time you are referring to?

It depends - each bank operates slightly differently. It also depends on your relationship with your banker. Once the bank has quoted a price, it is firm.

Unable to disclose. This again depends on your relationship with your banker. As with all sales roles the relationship is key. For your information, the bid-offer prices shown be it on Bloomberg or Reuters is inaccurate as it does not account for the inputs of the trading desks of each respective bank.

[ekl2ekl2]

No lah, I think individuals like us should not buy SGS bonds cos the yield is not very meaningful. Personally I would go for a corporate bond from a solid company with something like 2 years left - the risk is practically speaking not much more, but returns can potentially be significantly higher.

As another forummer said, wait for correction. There might be one coming soon enough! When there is fear, the (good) baby will be thrown out with the bath water.

For SG govt bonds with yield about 2.7-3.0%, wouldnt these be still more attractive than putting money in FD, since they are supersafe

[Iamderek]

Long = 2 / 3 hours. As a customer, one would think that the prices are real-time, i.e. you can call the RM and he should be able to quote you there and then. The fact that we have to wait to get a price causes one to suspect that the bank side is calculating how to maximise the profit from the customer.

Thanks for the insight.

That would be the case ideally, but RMs have more than one client under their portfolio. RMs need to check with the dealers as well which will take time.

That said, two to three hours is too long for a simple quote. One hour or less is enough - depending on what the RM currently has on his plate. For instance, if he is running five deals concurrently and you are asking for a quote, the priority is on getting those five deals first. Again, it depends on the relationship - how well your RM knows and understands you.

There is definitely some calculation of the profit involved - banks must make money after all.

[Iamderek]

For SG govt bonds with yield about 2.7-3.0%, wouldnt these be still more attractive than putting money in FD, since they are supersafe

Key risk is interest rate - unless you are firm on never selling them before maturity and are contented collecting the yield.

I see a small but real possibility that interest rates may never rise at all, barring a Black or Grey Swan.

[focus]

Long = 2 / 3 hours. As a customer, one would think that the prices are real-time, i.e. you can call the RM and he should be able to quote you there and then. The fact that we have to wait to get a price causes one to suspect that the bank side is calculating how to maximise the profit from the customer.

Thanks for the insight.

ya.. the bank will always be in conflict with you one lah.

Even those ELNs ..

[starrynight]

Do correct me if I'm wrong as I don't watch the details, but I believe:

a. SGS bonds with 2.7% to 3.0% yield are super long term. From this website I don't see anything with > 2% yield before a 2027 maturity cos the resale prices are much higher now. Even for new bond issuances, this means you take the risk that if interest rates start rising, and new SGD bonds get issued with higher yield, you take a practical hit whether you sell or keep to maturity. Do you really want to hold a bond with fixed coupon and 2033 maturity (assuming you are an individual with moderate amounts of money for bonds), for example?

b. for anything maturing in the next 5 years, I don't see any SGS bonds with more than 1% yield.

c. one can probably find good decent companies (e.g. Keppel?) with 3+ to 4+% yield with risk which is (for practical purposes) not significantly higher than SGS bonds, especially in a correction.

For SG govt bonds with yield about 2.7-3.0%, wouldnt these be still more attractive than putting money in FD, since they are supersafe

[phantom_opera]

this thread serves as a warning that bond prices peaking already

[hopeful]

hi iamderek,
lets say we take LTV 60% to buy bonds, and bond prices drop, at what point will the banks ask for topup? lets talk about your bank only.
or if we continue paying the monthly interest, would that be enough? even if bond prices drop by half.

if I buy 5 year bond using loan, what is loan duration, 2 year? 3 year?
any insurance like MRTA for bonds?

[starrynight]

Derek can give you the answer from his bank, but my DBS guy (the answer shld be the same with most banks) previously said:

a. as long as the bond prices drop enough for the margin to get wiped out, you will be asked to top up in cash. That's the same for share trading.

b. loan duration is usually the rolling 1-month or 3-month cost-of-funds + spread type. No one will offer you a fixed loan interest rate / tenure (unless you want to pay through your nose)

c. dunno abt the insurance part

hi iamderek,
lets say we take LTV 60% to buy bonds, and bond prices drop, at what point will the banks ask for topup? lets talk about your bank only.
or if we continue paying the monthly interest, would that be enough? even if bond prices drop by half.

if I buy 5 year bond using loan, what is loan duration, 2 year? 3 year?
any insurance like MRTA for bonds?

[hopeful]

Derek can give you the answer from his bank, but my DBS guy (the answer shld be the same with most banks) previously said:

a. as long as the bond prices drop enough for the margin to get wiped out, you will be asked to top up in cash. That's the same for share trading.

b. loan duration is usually the rolling 1-month or 3-month cost-of-funds + spread type. No one will offer you a fixed loan interest rate / tenure (unless you want to pay through your nose)

c. dunno abt the insurance part

thanks for your answer.
a) so there is "mark to market" everyday? the banks cannot pretend to overlook like in real estate, where as long as you pay monthly installment, they wont ask for top up?

b) is there anything like SIBOR, SOR based rates?
do we pay interest + principal monthly installment or do we pay interest portion only each month?

btw, any credit bureau check if we take loan to buy bonds?

[Laguna]

this thread serves as a warning that bond prices peaking already

yes, the prices have been sliding for about two weeks....

[Iamderek]

thanks for your answer.
a) so there is "mark to market" everyday? the banks cannot pretend to overlook like in real estate, where as long as you pay monthly installment, they wont ask for top up?

b) is there anything like SIBOR, SOR based rates?
do we pay interest + principal monthly installment or do we pay interest portion only each month?

btw, any credit bureau check if we take loan to buy bonds?

To add on:

Yes, Mark-to-Market (MTM) is done daily for risk management purposes.

Interest servicing only. If banks offer a fixed interest rate, the cost of hedging the risk to another counterparty increases dramatically. Hence either LIBOR or SIBOR plus a spread.

As for credit bureau check, not that I know of. Then again with increasing MAS regulations coming up, it may be a possibility in the future.

[Iamderek]

yes, the prices have been sliding for about two weeks....

Correction or a trend reversal?

[hopeful]

To add on:

Yes, Mark-to-Market (MTM) is done daily for risk management purposes.

Interest servicing only. If banks offer a fixed interest rate, the cost of hedging the risk to another counterparty increases dramatically. Hence either LIBOR or SIBOR plus a spread.

As for credit bureau check, not that I know of. Then again with increasing MAS regulations coming up, it may be a possibility in the future.

thanks
how about insurance?
credit card have insurance.
take property loan have insurance.
take car loan have insurance.

take loan to buy bond can take insurance on the borrower?

[starrynight]

My comments:

a) they will almost certainly not "close one eye". Housing serves a social function in part, whereas bonds do not. For a $250k investment per lot, you are expected to have some sophistication. Think of it as trading shares on margin - once the prices drop below the mark, your broker gives you only a short time to top up, failing which he sells for you.

b) I believe some banks can offer you Sibor, and possibly SOR for USD-denominated issuances.

thanks for your answer.
a) so there is "mark to market" everyday? the banks cannot pretend to overlook like in real estate, where as long as you pay monthly installment, they wont ask for top up?

b) is there anything like SIBOR, SOR based rates?
do we pay interest + principal monthly installment or do we pay interest portion only each month?

btw, any credit bureau check if we take loan to buy bonds?

[starrynight]

That one is a credit default swap. Mostly for the big timer institutions lah

thanks
how about insurance?
credit card have insurance.
take property loan have insurance.
take car loan have insurance.

take loan to buy bond can take insurance on the borrower?

[DC33_2008]

Such yield is quite low right. A one year FD across the causeway in a reputable bank will get you 3.88%.

Do correct me if I'm wrong as I don't watch the details, but I believe:

a. SGS bonds with 2.7% to 3.0% yield are super long term. From this website I don't see anything with > 2% yield before a 2027 maturity cos the resale prices are much higher now. Even for new bond issuances, this means you take the risk that if interest rates start rising, and new SGD bonds get issued with higher yield, you take a practical hit whether you sell or keep to maturity. Do you really want to hold a bond with fixed coupon and 2033 maturity (assuming you are an individual with moderate amounts of money for bonds), for example?

b. for anything maturing in the next 5 years, I don't see any SGS bonds with more than 1% yield.

c. one can probably find good decent companies (e.g. Keppel?) with 3+ to 4+% yield with risk which is (for practical purposes) not significantly higher than SGS bonds, especially in a correction.

[starrynight]

Yah, personally I find yield too low to buy SGS.

M'sia FD (and all other forex FDs) come with forex uncertainty, so it's an additional layer of "worry".

Such yield is quite low right. A one year FD across the causeway in a reputable bank will get you 3.88%.

[cbsh38584]

Correction or a trend reversal?

The correction 4-5% is more toward USD PERP bond without step up especially those Property developer + infra-structure. SGD dollars short dated straight bond is still holding well.

Any slight increase in interest rate will benefit the bank. That is why bank stock have been slowly going up.


rdgs,
Vic

[hopeful]

That one is a credit default swap. Mostly for the big timer institutions lah

thanks, i am not talking about CDS. i am talking if the borrower is incapacitated, death unable to make the installment, any insurance for that.

just like MRTA, if borrower is incapacitated, the insurance company will pay for the house.
or like credit card insurance, if borrower is unemployed, accident, unable to pay credit card, the insurance company will pay the credit card bill.

[DC33_2008]

Someone did an analysis that MYR depreciate against the SGD 1% a year based on the last 10-year record. You will still get 2.38%. It may better for those who are to service their home loan in Malaysia or to pay for a Malaysian property in the next 1-2 years.

Yah, personally I find yield too low to buy SGS.

M'sia FD (and all other forex FDs) come with forex uncertainty, so it's an additional layer of "worry".

[Laguna]

Correction or a trend reversal?

For those I am holding, it is still very much intact in term of TA.

[starrynight]

Ahhh.. I see what you mean. Don't think there is such a product readily available for stocks / bonds.

thanks, i am not talking about CDS. i am talking if the borrower is incapacitated, death unable to make the installment, any insurance for that.

just like MRTA, if borrower is incapacitated, the insurance company will pay for the house.
or like credit card insurance, if borrower is unemployed, accident, unable to pay credit card, the insurance company will pay the credit card bill.

[starrynight]

I'm a conservative person, but to me, it's not worth the risk. That sort of interest is just 1.2% more than what some banks are offering when they have promotion.

It's like the banks saying USD will drop to 1.18 / 1.19 end of 2013, but who knows? Worse yet for EUR versus USD - movement in the past 3 months defeats conventional logic.

Fully agree that it however makes sense for those who have MYR costs / expenses as a hedge

Someone did an analysis that MYR depreciate against the SGD 1% a year based on the last 10-year record. You will still get 2.38%. It may better for those who are to service their home loan in Malaysia or to pay for a Malaysian property in the next 1-2 years.

[Rosy]

Considering to sell some more bonds to buy into equities when there is a correction.

Any great minds alike?

[Iamderek]

thanks, i am not talking about CDS. i am talking if the borrower is incapacitated, death unable to make the installment, any insurance for that.

just like MRTA, if borrower is incapacitated, the insurance company will pay for the house.
or like credit card insurance, if borrower is unemployed, accident, unable to pay credit card, the insurance company will pay the credit card bill.

No insurance for leveraged bonds. Before you buy you should already have declared yourself as an Accredited Investor which MAS will take it as you have a certain degree of sophistication.