Bonds 01 (May 08 - Aug 10)

[millionairemind]

`Armageddon' Loan, Bond Prices Keep Debt Investors on Sidelines

By Pierre Paulden and Caroline Salas

Oct. 17 (Bloomberg) -- Credit markets have fallen so far that they are providing a ``once in a lifetime opportunity,'' and investors are still selling.

Prices of loans rated below investment grade declined to a record low 66.1 cents on the dollar, virtually guaranteeing investors get their money back, based on historical recovery rates, according to data compiled by Standard & Poor's. Yields on corporate bonds show investors expect 5.6 percent of the market will go bust, the highest default rate since the Great Depression, according to Christopher Garman, chief executive officer of debt research firm Garman Research LLC in Orinda, California.

While central banks injected $3 trillion into the global economy, credit markets are tumbling because banks are clamping down on lending, forcing investors to unload assets they bought with borrowed money. The Federal Reserve said Aug. 11 that its quarterly survey shows most ``domestic institutions reported having tightened their lending standards and terms.''

``There has been widespread liquidation of assets that has nothing to do with fundamentals,'' said Scott D'Orsi, a partner at Boston-based Feingold O'Keeffe Capital, a hedge fund which has $1.3 billion in assets. ``Investors in bank debt are being presented with a vast number of extraordinary opportunities; opportunities that I would characterize as once in a lifetime.''

The selling is being compounded by hedge funds and mutual funds dumping holdings to meet redemptions, which may push prices even lower, according to analysts at UBS AG.

Assets Seized

Barclays Plc, the U.K.'s second-biggest bank, is auctioning $642 million of loans seized this week from Dallas-based Highland Capital Management LP, according to people with knowledge of the sale who declined to be identified because the sale hasn't been announced. Hedge funds Tudor Investment Corp., run by Paul Tudor Jones, and SAC Capital Advisors LLC, managed by Steven Cohen, sold assets this month to raise cash as stock prices dropped, according to people with knowledge of the sales.

Barclays spokesman Brandon Ashcraft, and Jack Yang, a partner at Highland, declined to comment.

Prices of high-yield, or leveraged, loans tumbled 22.2 cents since Sept. 9, and are down from 95 cents on the dollar since the start of the year, according to New York-based S&P's LCD unit. Because bank debt holders typically recover about 70 cents on the dollar in bankruptcy, almost every loan in the market would need to default before investors would lose money, LCD said.

`Priced in Armageddon'

Corporate bond prices plunged to 79.9 cents on the dollar on average from 94 cents at the end of August and 99 cents at the end of 2007, according to index data compiled by New York-based Merrill Lynch & Co.

About 90 percent of the market trades like high-yield, high- risk, or junk, debt, Garman said in an Oct. 3 report to clients. Prices imply a 5.6 percent default rate, the most since the record 8.4 percent in 1933, he said. Junk bonds are rated below BBB- by S&P and Baa3 at Moody's Investors Service.

``It's quite possible that we had priced in Armageddon,'' said Robert Gahagan, head of taxable fixed-income in Mountain View, California at American Century Investment Management, which oversees $23 billion in fixed-income assets.

Wall Street firms have curbed lending after taking $661 billion of credit losses and writedowns since the beginning of last year, according to data compiled by Bloomberg. The collapse last month of Lehman Brothers Holdings Inc., the fourth-largest securities firm, sparked a new round of selling as investors became concerned that more banks may fail.

`The Big Picture'

The sales may hamper efforts by Treasury Secretary Henry Paulson to unlock the credit markets and challenge the next president as a slowing economy drives prices even lower. Industrial output fell 6 percent in the third quarter, the most since 1991, and a factory index for the Philadelphia region hit an 18-year low this month, Federal Reserve figures showed yesterday.

``The big picture is the economy is just starting to deteriorate,'' said Mark Kiesel, executive vice president at Pacific Investment Management Co., the manager of the world's biggest bond fund. Kiesel runs $180 billion in corporate bonds from Newport Beach, California. ``We still think there are a lot of redemptions and hedge fund liquidations coming.''

Hedge funds may be forced to dispose of half their $135 billion in high-yield loans to fund redemptions, Stephen Antczak, a UBS credit analyst in Stamford, Connecticut, wrote in an Oct. 10 report to clients. That may send loan prices as low as 60 cents, he said.

No `Turnaround'

``The de-leveraging that we're witnessing will probably continue,'' said Paul Scanlon, team leader for U.S. high yield and bank loans at Boston-based Putnam Investments LLC, which manages $55 billion in fixed income. ``My sense is that's not turning around in the very near term.''

The biggest hedge fund run by Citadel Investment Group, which manages $18 billion, fell as much as 30 percent this year because of losses on convertible bonds, stocks and corporate debt, people with knowledge of the returns said. Citadel founder Kenneth Griffin blamed ``reduced availability of credit'' for the declines.

Investors withdrew a record $43 billion from hedge funds in September, according to TrimTabs Investment Research, which has been tracking the data since 2000. The industry had declines of 9.4 percent this year through the end of September, according to Chicago-based Hedge Fund Research Inc., the worst year in two decades.

Commercial Mortgages

For buyers to lose money on some top-rated bonds backed by mortgages on offices, hotels, apartment buildings and other commercial properties, the circumstances would have to surpass the worst conditions on record, according to Darrell Wheeler, global head of securitized strategy at Citigroup Inc.

Commercial-mortgage securities rated AAA that require an unprecedented three-quarters of the underlying loans to default for any loss of principal are trading at about 70 cents, according to New York-based Citigroup.

``We're not at these prices because of the fundamentals: We threw those out the window a year ago,'' he said. ``This is strictly people want to sell something to raise cash, and it's easy to sell these CMBS because it's a liquid market.''

Yields on AAA commercial mortgage bonds were at a record 620.7 basis points over benchmark swap rates on Oct. 15, up from 47.8 basis points a year ago, according to Bank of America Corp. A basis point is 0.01 percentage point.

[winston]

Why Bond Prices Will Collapse By Tom Dyson

"I can't stand to sell at these levels. But I don't have any choice. I need the cash now..."

One of my cycling buddies has a huge house. He spends $30,000 on property taxes every year. He's retired. So to make these payments, he sells a few shares of stock whenever the bills arrive. He built his portfolio around financial companies. This year, they cratered.

"I used to sell 500 shares to pay my tax bill. Now I sell 5,000 shares. It's devastating my holdings. Even if the stock market rises again, I'm still screwed."

This story illustrates why the stock markets are falling so much. The world's financial system is founded on debt. Payments must be made every month to service this debt, like my friend must pay his property taxes. If cash runs out, the debtor must sell assets... or declare bankruptcy.

Last week, the whole world rushed for the door. Everyone tried to make payments on their debt by selling assets. Corporations, states, hedge funds, governments, and millions of people like my friend. The stock market collapsed.

The best place to be in a debt crisis is government bonds. Credit crunches lead to recessions and depressions. Recessions are deflationary. Prices fall. Government bonds' fixed coupon payments and safe-harbor status make them the most attractive investments in the market.

(Of course, debt crises end up being inflationary as governments pump lots of money into the economy, but that comes later.)

We're passing through the worst credit crunch in America's history. You'd think government bonds would have soared. But they didn't. The problem is, if Treasury bonds were the last investment on Earth, it wouldn't matter right now. The world needs cash. And it'll sell any asset to get it... even Treasuries.

Look at the recent spike on the chart below. It shows the 10-year Treasury bond yield. When the yield rises, the bond price falls. So you can see bond prices have had a massive collapse, starting September 17. That's one day after the government bailed out AIG... and two days after Lehman declared bankruptcy.

Treasury bonds are perfect for dumping. They are liquid, so investors can sell them easily. And they have high prices. Unlike my friend's bank stocks, you can generate lots of purchasing power by selling them.

My concern is, if this credit crisis gets worse, it's going to trigger even bigger whales to liquidate their Treasury bond holdings... whales like the Chinese, the Japanese, or the oil exporters.

So far, we've only seen what happens when banks and hedge funds liquidate. If Japan and China start unloading – or even if they just slow down their purchases – the Treasury bond market will fall through the floor.

This sets off another vicious cycle. As prices fall, the interest rates Uncle Sam must pay rise. The higher interest rates rise, the more the U.S. must pay... which makes bond traders mark down the country's credit rating. This sends bond prices even lower...

If the trend grows, we'll see a biblical collapse in the Treasury bond market.

[winston]

Pimco favours China, Singapore

* Pimco favours China, Singapore, but not India
* Modestly bullish for JGBs, yield curve to stay steep

TOKYO - Asian markets face uncertainty in the global crisis and countries such as China and Singapore with the firepower to fight back will come out on top, the managing director of Pimco's Asia-Pacific operations said on Monday.

Pimco, the world's biggest bond fund manager, said it prefers countries such as China and Singapore that can pull on various levers - whether they be monetary policy or fiscal - to counteract a potential global recession.

Countries with lower credit ratings or lacking the flexibility will find it a tougher road, Douglas Hodge, Pimco's Tokyo-based chief said in an interview for the Reuters Global Finance Summit.

'We've been through a financial hurricane and we are not in the eye of the storm,' he said when asked about the situation at Pimco. 'We are not in the storm, but we have gotten wet. So it's still raining.'

Pacific Investment Management Co, or Pimco, said it did not favour India, given the country's large current account and fiscal deficits, despite its more insular economy.

'The countries that we prefer have the maximum discretion to use policy to help offset the dislocation in the private sector,' said Mr Hodge. 'The countries that we don't like are the ones with the least flexibility.'

Signs of a sharp slowdown in developed markets such as the United States and Europe have cast a shadow on export-dependent Asia, and some countries in the region are responding by cutting interest rates and spending their way out of potential trouble.

On Sunday, China approved a four trillion yuan (US$586.2 billion) government spending package to boost domestic demand, while South Korea announced a package of around US$11 billion last week.

Pimco, arguably the world's best known bond manager under chief investment officer Bill Gross, had US$64 billion in assets under management in Asia Pacific as of Sept 30, representing about 8 per cent of its global total of US$790.3 billion.

In Asia, it focuses on institutional clients such as central banks, and insurers and pension funds.

Pimco modestly bullish on JGBs
Pimco is 'modestly bullish' on Japanese government bonds because of the slowdown in Japan's economy, and also expects the JGB yield curve to remain steep, Mr Hodge said.

'Our views are, I would say, modestly bullish because we think the economies across the world, particularly developed economies, are going to slow down.'

But that will be offset by the possibility of extra bond issuance to finance fiscal stimulus measures, Mr Hodge said.

Such supply concerns, coupled with the likelihood of the BOJ keeping interest rates very low, is likely to keep the JGB yield curve steep, he said.

Japan joined the global response to combat the worst financial crisis in generations by slashing interest rates and crafting a 5 trillion yen (US$50.43 billion) economic stimulus package in late October.

The Bank of Japan (BOJ) also trimmed its key interest rate late last month to 0.3 per cent from a decade-high 0.5 per cent.

Yet the outlook for the Japanese economy stays gloomy.

Japan's core machinery orders suffered their biggest quarterly fall in a decade and manufacturers saw a weak rebound as companies cut capital investment.

The yield spread between two-year and 10-year Japanese government bonds widened to 98.5 basis points on Nov 5, after the BOJ lowered interest rates by 20 basis points to 0.30 per cent in late October.

That was the widest yield spread between the two- and 10-year JGBs since January 2007. -- REUTERS

[millionairemind]

Published November 13, 2008

ANALYSIS
China stimulus heightens jitters over US bonds
Investors worry that Beijng will sell Treasuries holdings or slow purchases

(NEW YORK) China's mammoth economic stimulus package announced this week is the latest piece of bad news for US Treasury bonds as the market prepares for a borrowing requirement to fund the US government's bailout of the banking system.

Bond investors are concerned that China may either trim its huge US Treasuries holdings to pay for the country's US$586 billion stimulus package, or slow its purchases of US government debt.

To make matters worse, analysts expected a huge acceleration in US government debt issuance running to some US$2 trillion over the next year, swelling the size of the US$4.9 trillion Treasury market and weighing on the prices of these securities. Add it up and prices should fall and yields surge, analysts worried.

'The immediate knee-jerk reaction in Treasuries appeared to be a supply-related shock on the possibility that China would have to sell Treasuries to raise cash for the infrastructure spending,' said Bill Kohli, managing director of global specialist core fixed income with Putnam Investments in Boston.

But for now, a sharp deterioration in the US economy, together with rapidly vanishing inflation as global commodity prices fall, is supporting US government bond prices and keeping down yields.

After news of China's stimulus plan hit the US Treasury market on Monday, the initial market reaction was quickly absorbed by 'the overwhelming tide towards risk aversion and slowdown fears' for the global economy, Mr Kohli said. Flows out of riskier assets and fears about the economic downturn drive safe-haven capital flows into Treasuries.

Yet that market move may mask the longer term danger of the surge in supply of longer dated sovereign debt globally as governments ramp up debt issuance to pay for their attempts to shore up growth.

'Longer term, budget issues and government debt levels are all going to be putting pressure on the longer end of government debt curves', as governments bail out private institutions and take on their liabilities, said Mr Kohli.

To finance its huge US$586 billion economic stimulus plan, China 'will have to either sell its holdings of US Treasury and agency securities, or slow its rate of accumulation in these securities', wrote Tony Crescenzi, chief bond market strategist with Miller, Tabak & Co in a research note.

Beyond the Treasury market, the plunging US housing market needs lower mortgage rates before it can stabilise. But if the 10-year Treasury note's yield spiked higher, US house prices have little chance of stabilising as mortgage rates are priced off the US Treasury yield curve.

When debt issued by the now government-controlled mortgage finance giants Fannie Mae and Freddie Mac is added, China holds between US$1 trillion and US$1.5 trillion of US debt securities, analysts estimated.

Money to fund China's stimulus package, much of it for infrastructure projects, will most likely come from the nearly US$2 trillion of foreign reserves held by the Chinese government, the lion's share of which is in US Treasury and agency debt, which 'in reality amounts to a subsidy of the US economy', wrote Peter Schiff, president and chief global strategist with Euro Pacific Capital in a research note on Monday.

'If it does tap into this ocean of cash, China will become a net seller of US Treasuries just as the US will be issuing a record supply,' Mr Schiff wrote. 'With two huge sellers and just about every major creditor nation having problems of their own, the Federal Reserve will be the only buyer,' he added.

Another worry for global bond markets is that should China's economic stimulus plan help the world economy rebound, that will lessen the appeal of government bonds, which rally in hard economic times. Yet a major global impact from China's initiative is not expected. -- Reuters

[fclim]

hi experts,

anybody bot any HDB/JTC/LTA bonds off from the SGX?
the yield like quite good leh... 3%-4% ++

if cannot buy from SGX, then buy from who? hmm...

thanks for any advice / enlightenment.

have fun,
fc

[millionairemind]

Bond Risk Surges to Record on Concern Slump ‘Too Hard to Fix’ Email | Print | A A A

By Aaron Pan and Abigail Moses

Dec. 2 (Bloomberg) -- The cost of protecting corporate bonds from default soared to a record on concern central banks are reaching the limit of what they can do to ease the severity of the global economic recession.

Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increased 18 basis points to 956, according to JPMorgan Chase & Co. prices at 9:36 a.m. in London. The Markit iTraxx Europe index of 125 companies with investment-grade ratings climbed 3.5 basis points to 191.5 and earlier traded at a record 198.

“The economic slump is too hard for anyone to fix right away,” said Tetsushi Nagato of Schroder Investment Management Japan Ltd., whose parent manages the equivalent of $205 billion.

Australia’s central bank cut its benchmark interest rate 1 percentage point today, extending the biggest round of reductions since the 1991 recession. Investors are speculating the European Central Bank and Bank of England will lower rates this week, while the U.S. Federal Reserve may reduce its benchmark to zero, economists said.

The iTraxx Australia index of credit-default swaps jumped 35 basis points to 375 in Sydney, Citigroup Inc. prices show. In Tokyo, Japan’s benchmark index rose 35 to 370, according to Morgan Stanley. Bank of Japan Governor Masaaki Shirakawa said after an emergency meeting today that cutting the benchmark interest rate from 0.3 percent could impede the function of the money market.

“The BOJ is likely to implement quantitative easing again, maybe next year,” Nagato said. “It will be like a global quantitative easing.”

Quantitative Easing

Quantitative easing refers to the period between 2001 and 2006 when Japan’s central bank kept interest rates close to zero and flooded the financial system with cash. The Fed has effectively adopted a similar policy already, Kazumasa Iwata, former deputy governor of the Bank of Japan, said in a speech on Nov. 26.

Bank of England Governor Mervyn King openly discussed the possibility of zero interest rates for the first time on Nov. 25. The European Central Bank will cut its benchmark rate to 1.5 percent next year, according to the median of 25 forecasts in a Bloomberg News survey, with Citigroup Inc. saying that a move to zero is possible. The Swiss National Bank has cut its short-term rate to 0.1 percent.

Non-bank lenders and real-estate companies are among those facing the most financing difficulty as credit markets seize up and investors become more reluctant to invest in riskier assets, said Nagato.

‘It’s Ugly’

Three-year credit-default swaps on Acom Co., Japan’s largest consumer lender by market value, traded 130 basis points higher at 860, according to Credit Suisse data. The price to protect against an Acom default is equivalent to 860,000 yen ($9,180) annually per 10 million yen of bonds.

“The price movements are so rapid,” Nagato said. “It’s ugly, a small portion of the market can determine the price.’‘

Corporate bond sales in Japan plunged 45 percent in November from a year ago, data compiled by Bloomberg show. NTT DoCoMo Inc. and Nippon Steel Corp. paid higher yield premiums last week when they sold the first bonds outside the public works sector since Oct. 15. The shortage of credit drove bankruptcies among publicly traded companies to a record 30 this year, after property developer Morimoto Co. collapsed last week.

iTraxx Asia

The Markit iTraxx Asia credit-default swap index of 50 investment-grade borrowers outside Japan, including Thailand and Hutchison Whampoa Ltd., advanced 35 basis points to 425 at 10:06 a.m. in Hong Kong, according to ICAP Plc prices.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality; a decline, the opposite.

Contracts on the Markit CDX North America Investment Grade Index of 125 companies in the U.S. and Canada increased 23 basis points to 260 at the close of trading in New York, according to Deutsche Bank AG.

[kennynah]

all these years....i could never bring myself to buy Bonds.... maybe i am missing out something here....but for those SG Bonds at <2%..... i must be really desperate to buy them

[winston]

Stats of the Week: 30.4%

Amount the 30-year Treasury bond has returned this year – its best performance since 1995

[winston]

SUPERTRADER CALLS FOR A BOND DECLINE by Brian Hunt

It doesn't take long for a great speculator to explain how he or she makes consistent money in the market. The whole art can be summed up in eight words: "Whatever the crowd does, I do the opposite."

As our colleague Jeff Clark explained to his Growth Stock Wire readers yesterday, the great speculator has to consider going against the huge crowd piling into U.S. government bonds right now – no matter how tiny the yields earned. Jeff put it like this:

"Last Monday, the U.S. Treasury auctioned off $5 billion of three-month T-bills for 0.00%... [This] demonstrates the insatiable demand for Treasury securities over any other investment asset. Rather than take the risk of buying blue-chip stocks at cheap valuations and with fat dividend yields... rather than buy gold, silver, oil, or any other commodity at fire-sale prices... investors prefer to lock in a guaranteed negative real return."

As you can see from today's chart of the U.S. government bond ETF, the crowd is scared to death. They're chasing the price of bonds to the moon, and they're accepting pathetically low interest rates in compensation. When the crowd loves something, it's best to avoid it like grim death.

[kennynah]

SUPERTRADER CALLS FOR A BOND DECLINE by Brian Hunt

It doesn't take long for a great speculator to explain how he or she makes consistent money in the market. The whole art can be summed up in eight words: "Whatever the crowd does, I do the opposite."

i think in its simplistic form, this statement bears only 1/2 truth.... for a speculator (which is a latin word for "to watch"), risk and capital management are 2 other aspects that when combined with many other skills...

no one should believe that being a contrarian is the way to consistently make money.