Since Feb 2018, bonds and reits have fallen and have not recovered to Feb highs. With interest rates rising, they have fallen out of investor’s favour. Yet recently, many SREITS are now making 20 day highs, outperforming most SGX stocks. Like wise bonds have recovered slightly after long tenor bonds were beaten down.
I sold ASTREA IV S$242M4.35%B280614 (RMRB.SI) retail bond at 1.05 last friday. Nothing wrong with this bond, in fact, I like this bond (see http://wealthlions.com/2018/06/astrea-iv-4-35-retail-bonds/). 5% is more than one year’s coupon. The money can be channeled elsewhere.
Why I like Astrea IV Class A-1 Retail 4.35% retail bond:
- Indirectly wholly-owned by Temasek Holdings. Bondholders are ranked higher than equity holders.
- Secured bond. Most secured bonds have typically much lower coupons.
- Risks are diversified across 596 companies.
- Beneficial structured safeguards for bondholders
School holidays are over, my kids are in school, and my blogging will resumes! I will now answer some questions posed to me recently.
I am sharing the various scenarios of Hyflux perps that is playing out in my mind. Please note that the following are my speculation as no one can predict the future.
Mr Goh Eng Yeow wrote an article in the Straits Times “Perpetual market – too much risk, and too little reward”. http://www.straitstimes.com/business/companies-markets/perpetual-market-too-much-risk-too-little-reward?
Hyflux released their results yesterday and their Hyflux 6% CPS 10 perp price is again under pressure now as I am writing. Please read the report : https://www.theedgesingapore.com/hyflux-sinks-red-2q.
As you read the report, see the reasons given for their poor performance. Ask yourself if these reasons will affect their credit standing over the next 8 months?
Is this an opportunity? Yes, that is my opinion. Why?
- 3% coupon in Oct 17. Another 3% in Apr 2018. Total 6%
- Assuming I buy at 99.0, in Apr 2018, Hyflux is likely to return the money back to me at 100. That is another 1%.
- If money is not returned to me in Apr 2018, coupon will be reset to 8%. Hyflux is in my opinion likely to call back the bond as they do not need to resort to 8% borrowing cost.
- Hyflux has been paying good dividends, so they must pay the perp holders first before shareholders. In the event that they do not pay coupons, the coupons will be cumulative anyway, meaning that they must make good what they did not pay in the past on their next payments.
- Their main reason for poor performance is “continued weakness in Singapore power market”.
- Total of 7% gain in 8 months. If annualized, it will be higher. And this is before the use of margin.
Here is the daily chart. The last candle on the right is today’s candle which have not closed yet. Note the long wick a couple weeks ago on 21 July.
This is the market depth as of 12.07pm
SGX only allow queueing 0.20 away from last done. With last done at 99.00, I am queueing to try to get some between 98.80 to 99.00. Hyflux is considered Grade C bond, so its good to have some, but not too much. Ideal for buying using SRS account. Please read this article with a tiny pinch of salt as I am already holding some Hyflux perps.
You may be interested to know 2 other posts I made on Hyflux 6% perp recently.
Top grade bonds that can be supercharged using margin accounts are few. I was asked recently what are the junk bonds (high yield) bonds that have caught my eye. I have listed some bonds that looks interesting and have ordered them according to my preference. Admittedly, i have yet to dive deep into these companies as I do not plan to invest in them.
- Sabana 4% Mar 2018, price 99.0, YTM 5.5%
- Sabana 4.25% Apr 2019, price 96.0, YTM 6.8%
- Religare Heath Trust 4.5% July 2018, price 99.7, YTM 4.8%
- CWT 4.8% 2020, price 99.8, YTM 4.9%
- Ara 5.2% perp, price 103.5, YTC 4.4%
- Centurion 5.25% July 2018, price 100.7, YTM 4.4%
- Tuan Sing 4.5% Oct 2019, price 98.2, YTM 5.3%
- Tuan Sing 6% Jun 2020, price 100.5, YTM 5.8%
- Tat Hong 4.5% Jul 2018, price 99.0, YTM 5.6
- G8 Education May 2019, price 99.9, YTM 5.5%
- Oxley 6.375% 2021 USD, Price 100.4, YTM 6.2%
- Aspial 5.05% Jun 2019, price 100, YTM 5%
- Tiong Seng 4.75% Jan 2018, price 100, YTM 4.7%
- TA Corp 5.5% Mar 2018, price 97.5, YTM 9.4%
- Banyan Tree 5.75% Jul 2018. price 101.1, YTM 4.6%
- Banyan Tree 5.35% Nov 2018. price 100.4, YTM 5.0%
- Pacific Int Lines 7.25% Nov 2018, price 99.8, YTM 7.4%
Note that these bonds are not investment grade and hence cannot be margined at good rates. The prices used are from bondsupermart.com prices which is only a guide to the real prices and does not include any commission.
When i ask investors who attend my seminars if SGD interest rate will increase in 2017, the majority took the view that Singapore will match US Fed increasing interest rates. For me, I have always told them that I will not be so sure if I were them.
My reasons are:
- US economy doing well, is Singapore economy doing well?
- If we follow US rates as we have been known to do so historically, won’t our currency be much stronger than our neighbouring countries? Won’t this make us noncompetitive? As far as I know, all asian countries, including China, are devalueing their currency.
- I am a very keen bond investor, and have observed corporate bond market rally. Interest rates cant be increasing too much when smart institutional money are buying bonds.
Well, I have been proven right. While the US interest rate has increased 3 times in the last 7 months, look at what happened to our SGD interest rates. Its at 2017 low.
Note that I am not an economist, but I do keep abreast of macroeconomics.