Is OUE 4.25% 2019 at 101.50 cheap?

When it was clear to me at 8.54am this morning that OUE will not be calling back their OUE 4.25% 2019 on 30 Oct 2017, I bought my 2nd OUE bond today.

Please read previous post, which describes the terms of this unique senior bond with multiple call dates with different redemption prices.

I have compile the YTCs and YTM of each maturity dates, based on the price of 101.5 with commissions included :

The average YTM is 3.44%.

If I were to buy using margin account by funding $80k collateral, the following will be my returns:

The average supercharged yield is 5.9%.

If you want to know how I arrived at the above tables, you may find my spreadsheet here:

What are my considerations for buying OUE 4.25% 2019?

  • Which senior bond (duration <3 years) of Singapore blue chip financial or property company has a YTM of more than 3%? You are right that there is none – except for this OUE bond.
  • The YTM of other short duration OUE bonds such as OUE 3.03% 2020, and OUE 3.8% 2020 are both < 3%.
  • Investors probably do not know how to analyze bonds with multiple call dates. Contrary to traditional thinking, multiple calls dates is not a disadvantage for me. In fact, it is an advantage. Multiple call “ensure” that prices hover around their redemption prices.
    • When supercharging, there is no need for prices to move up to make money. As long as the prices stay about the same, I can make the difference between the lending rate and borrowing rate.
    • Prices being stable around their redemption prices is a strong protection even if interest rates were to rise.
  • OUE is backed by the Lippo Group, one of the largest real estate developers with US$15B in assets. What is the probability that it becomes bankrupt in 2 years?

In summary, OUE bond gives reasonable returns with very minimum risks, a good risk vs reward investment – and better than any 2Y fixed deposits.

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