Bonds 01 (May 08 - Aug 10)

[millionairemind]

Published September 18, 2008
'All Weather' boost, Minibond dampener
Investors in Merrill notes to get refund, but Minibond saga likely to drag on
By SIOW LI SEN

SINGAPORE) First, the good news: investors who subscribed to the All Weather Booster Notes arranged by Merrill Lynch and wish to pull out now can do so - and get a refund.

On the other hand, those who invested in the Minibond notes arranged by now-bankrupt Lehman Brothers are in for a long wait to know what's in store as the unwinding process has yet to begin.

Both sets of investors had started to sweat after Lehman went bankrupt and Merrill Lynch was bought by Bank of America (BoA). Fortunately for those who invested in the All Weather Booster Notes, although the sale had closed, the notes had not been issued yet. They are due to be issued on Sept 20 and the money collected from investors is being held by the distributors till then.

'We understand that distributors have received advice from Merrill Lynch that investors who have subscribed to the Citrine All Weather Booster Notes will have the option of getting a refund if they do not want to go ahead with the purchase now that Bank of America has bought over Merrill Lynch,' said Koh Ching Ching, OCBC Bank spokeswoman.

OCBC is among nine distributors here who sold the Citrine Notes. The rest are ABN Amro Bank, AmFraser Securities, CIMB GK, Citibank, DBS Vickers, DMG & Partners, Standard Chartered Bank and UOB Kay Hian.

Meanwhile, HSBC Trustee, which looks after the Minibond investors, said it is engaging legal counsel to explore all options.

Investors who bought Minibond notes worth almost $500 million arranged by the bankrupt Lehman Brothers have been calling and visiting their brokers and bankers trying to get some answers.

A spokesman for HSBC Institutional Trust Services yesterday said: 'In our capacity as trustee, we are focused on safeguarding the interests of the investors and are engaging legal counsel to explore all options available.'

Allen & Gledhill are the legal advisers to the Minibond notes, which were sold over the last two years to mainly small investors as the minimum amount was $5,000.

Morose Minibond investors have been trying to get some answers from their brokers and bankers on what's going to happen to their investments.

But there are no answers although there is a long line of parties who will first be paid before Minibond noteholders get anything.

In the event of default, which requires the underlying assets to be sold, 'the net proceeds could be insufficient to pay all the amounts due to noteholders', said Minibond in a filing document.

It also said that the swap counterparty (Lehman), the trustee and the custodian (both HSBC) shall rank prior to the noteholders when it comes to what money may be recovered.

[sidney]

Sometimes things go bad fast... like your mee siam buy already forget put in fridge. The yield of 5+% is not very high also to compensate for credit risks.. although at tat point of buying bonds no one predict the era of bankruptcy, nationalisation and firesales will happen... so fast like your mee siam

[LenaHuat]

From the FT : Lehman bondholders could suffer a $110b loss. Paper trading at about 18 cents to dollar.

B4 Merrill Lynch merged with BofA, it sold its distressed assets for 22 cents to dollar.
Can any1 recall E*trade's??

[sidney]

Bond returns - its yields are unlikely to provided accurate projections, although i agreed in long run, it's definately better than FD. YTM, yield to maturity illustrates say, 4% if we managed to reinvested at same rate (4%) every time the coupon pays until the product maturites.

This is unlikely to materialised. If Sgsbonds yield 4% pa, and i purchased 2k worth ( for a junior worker / student), coupons payments is only $40 every 6 months. What products can i buy with $40? At most cover trading fees. More likely, the 40 bucks will end up in starbucks and a nice movie run. Therefore what Exactly is my yield? Much, much lower. Note annulised projects in cash amt tat financial institutes projects say your 100k grows into 160k at a certain ytm rate is also unlikely to be true, as you need to factor in their handling fees and their ability to reinvest for you at the stiputated YTM rates.

While ytm as a yardstick to measure returns, somewhat looks brunt.

[kennynah]

They always look good in theory. In practice, one needs a big account to benefit from
bonds. There's never free lunches

[sidney]

Ya lor kenny, big fat account then can reinvest by bond fund mgrs in their active bond portfolio management.

In contrast with current SGS bonds yield 1.4x~1.6% pa (different maturities) and CPF SA yields, can i assume if i use my CPF SA to buy SGS bonds is not really an intelilgent choice?

I very tempted to buy my first bond, but as student there is always constraints on money supply so maybe use SA to try since the money is akin to "see, no touch."

[kennynah]

I must admit, I duno much abt bonds. I recall cpf pays better interest returns

[sidney]

this is called an inverted yield curve... it is a signal that a possible recession is coming on.

people want to be paid nearer than further out, bcos further out is cloudier comparatively given all the uncertainty..

whenever the nearer end bond yields higher than farther out bonds, the economy is almost certainly sliding into a drastic slowdown...

Dear all, do u have anymore insights on inverted yield curve? My lecturer also mentioned downward sloping yield curve is the beginning of recession. Moving forward, what's probability S'pore will kana recession due to the inverted yield curve as we observe now?

Correction! there is no inverted yield curve as observed. I got confused by coupons and yields. Apparently i have plotted my yield curve.. look like normal yield curve.

[kennynah]

congratulations!

[winston]

Emerging-market bonds from Venezuela to Russia tumbled as an escalating global banking crisis led investors to dump riskier assets.

The extra yield investors demand to buy developing-nation debt surged 53 basis points to 5.99 percentage points, the biggest since May 2003, according to JPMorgan Chase & Co.'s EMBI+ index.

A basis point equals 0.01 percentage point. The so-called spread has swelled 1.63 percentage points this week, the most since Russia's debt default in 1998.
– Bloomberg