S'pore investors turn to riskier bonds

[tanjm]

Another disturbing trend that I've noticed is that banks are now willing to help "sophisticated" investors double up on their bets by lending them money to leverage up on these high yield bonds.

One wonders why banks aren't taking the trade themselves if its such a "sure-win".

Cheers,
theasiareport.com

This is not new. There were investors like that during the last GFC.

[tanjm]

Sorry, if I may ask, are such high-yield bond issues available to retail invetors or only for HNWI? If available, then worth subscribing to? & how to apply for them?

You can buy into the high yield bonds through the iShares Barclays Capital USD Asia High Yield Bond Index ETF.

Full Disclosure : I hold this ETF in my portfolio

I would be careful about this product if I were you. I've noticed that the NAV of this ETF hardly budges, which is unnatural. Basically, many of these bonds are not liquid at all, so I would question the "NAV".

I'm not saying its a bad investment. In fact, I would buy it if its price were lower (I believe the YTM is currently about 7%ish). But due to (1) the NAV factor as I mentioned, and (2) China HY bond holdings in its composition, I would need a better yield to induce me to buy.

Hi Tanjm,

Sorry, missed this reply earlier.

Actually, I am slowly trying to implement a ETF strategy of exposure to markets as per market attractiveness.

As a part of that I need some bond exposure.

Point noted on NAV.

I suspect that most of the bonds are likely to roll over once they are due.

Yes, the exposure to China is high at 42%. But, I figure that China is due a boom in Debt and instead of holding one, this vehicle allows me to hold a bunch, chances are that if one blows up, the yield will spike up allowing the ETF provider to ladder up.

Yield is around 7% and yes, hopefully, the price falls a lot so that I can top up

You need to worry about a deterioration of Chinese debt causing a general spike in yields across the board (lowering your NAV). Basically, HY bonds have equity like characteristics and are not purely sensitive to interest rates or specific default events.

And rebalancing can work for or against you.

[kazukirai]

“More money has been lost reaching for yield than at the point of a gun.” – Raymond DeVoe Jr.

Anyone else reminded of this quote when seeing that headline?

[Shrivathsa]

This article will be a good read for anybody interested in this.

Also, this may sound pedantic, but that quote was from Rockefeller, which was mentioned by Raymond Devoe in his market speech

[greengiraffe]

http://www.businesstimes.com.sg/premium/...s-20140724

HOCK LOCK SIEW
Seek high-yield blue chips, not bonds
BYCAI HAOXIANG
haoxiang@sph.com.sg @HaoxiangCaiBT

THE rush for yield in Singapore reaches new heights every day, and at first glance, retail investors are losing out.
On Monday, rubber producer Halcyon Agri received orders of over S$2 billion for just S$125 million of its 6.5 per cent 2019 bonds.
On Tuesday, fish supplier Pacific Andes was said to have also received orders of over S$2 billion for just S$200 million of its 8.5 per cent 2017 bonds.
Mid-cap or even small-cap companies can now borrow cheaply from wealthy private bank clients hungry to get a return on their cash piles.

[Temperament]

Interesting. So guess from where this time the "Black Swan" will appears?

[YFS]

I belong to this group of high yield bond buyer - unknowingly as i was terribly busy when i got a call from my bank. I only realised the company is so highly leverage after saying yes, and regret my decision. Luckily the bond market is still buoyant and i just sold my Aspial Corporate 5.05% 2019 bond making a loss of SGD48 but i am still happy to get rid of it. i suggest you guys out there do not be enticed by the high yield and really look at the sharing of risk and decide for yourself. Also ask yourself if a particular bond were to be rated what would be the credit rating likely to be.

[CityFarmer]

I belong to this group of high yield bond buyer - unknowingly as i was terribly busy when i got a call from my bank. I only realised the company is so highly leverage after saying yes, and regret my decision. Luckily the bond market is still buoyant and i just sold my Aspial Corporate 5.05% 2019 bond making a loss of SGD48 but i am still happy to get rid of it. i suggest you guys out there do not be enticed by the high yield and really look at the sharing of risk and decide for yourself. Also ask yourself if a particular bond were to be rated what would be the credit rating likely to be.

Bond is similar as equity, price (yield) is only part of the story, and likely the smaller part.

Welcome to our VB forum

Regard
Moderator

[tanjm]

I belong to this group of high yield bond buyer - unknowingly as i was terribly busy when i got a call from my bank. I only realised the company is so highly leverage after saying yes, and regret my decision. Luckily the bond market is still buoyant and i just sold my Aspial Corporate 5.05% 2019 bond making a loss of SGD48 but i am still happy to get rid of it. i suggest you guys out there do not be enticed by the high yield and really look at the sharing of risk and decide for yourself. Also ask yourself if a particular bond were to be rated what would be the credit rating likely to be.

These days, Bond issues are generally fully subscribed on the same day it is launched. I cannot bring myself to plunk down the 250k minimum just because my broker calls me up and tells me I'd better make my decision quick or i will miss the boat. This is crazy....

[corydorus]

China is on controlled brake and US is on slow recovery. Euro on path of low rates too.
So with such scenario, there is high cash and we should have years of run up before bubbles.

People who stays out will have possibilities of missing out big time. Bond gives a a more compromise solution though i do agree retailers should not treat all bonds the same else it will be a big problem years to come.