Bonds 01 (May 08 - Aug 10)

Bonds 01 (May 08 - Aug 10)

Postby winston » Sat May 10, 2008 10:28 am

FUND MANAGERS CAUTIOUS ON ASIAN BONDS AS INFLATION SOARS
07/05/2008

Higher inflation in Asia could weigh on the region’s bond markets, but those who invest in local currency bonds can still benefit from stronger currencies.

MUMBAI (Dow Jones, 24 April 2008) - Pacific Investment Management Co. is betting on Asian currencies and avoiding sovereign debt, as interest rates across the region rise to curb inflation, the managing director of its Asia Pacific operations said.

"When we look at Asian debt markets right now with this new plane of higher inflation, it doesn't make the current yields look terribly attractive," Douglas M. Hodge told Dow Jones Newswires in a recent interview.

Pacific Investment Management, or Pimco, is a unit of Allianz SE (AZ) and is the world's largest fixed income manager in terms of assets under management.

"We are rather cautious and defensive on Asian bonds. We are not as largely invested in Asian bonds as we were," Mr. Hodge said.

He didn't elaborate on how much the fund has invested in Asian bonds.

Despite a slew of fiscal and monetary measures, soaring global food and energy prices have jarred most Asian economies and brought alive the possibility of higher interest rates.

Inflation in China was the highest in nearly 12 years in February, while Singapore is currently facing a 26-year peak. Authorities have responded in many countries by raising interest rates and asking banks to set aside more cash as reserves.

"As of now, many monetary authorities in Asia are challenged with this problem of adjusting to the new economic reality. So we are watching it very carefully," Mr. Hodge said.

But he is very optimistic on emerging market currencies in Asia which "seem to be on an upward path of adjustment."

Outlook good for Asian currencies

The outlook stems from the possibility that these currencies could be allowed to appreciate to combat inflation, Mr. Hodge says.

He said the current regulations for foreign investment in sovereign debt in India made the bond market inaccessible for a big player like Pimco, which had US$746.3 billion in assets under management as of December 31, 2007.

The Reserve Bank of India mandates that the sum of all foreign institutional investments in government bonds cannot exceed US$3.2 billion in a fiscal year.

"The allowed investment is a very small fraction of the total size of the (Indian bond) market. So for all intents and purposes, we cannot enter the market," Mr. Hodge said.

The daily trading volume in Indian government securities is around US$1 billion.

But on a longer-term perspective, opening up the bond market for investment would be beneficial to the country's economic growth, he said.

"The cost of capital for a private entrepreneur or companies that want to raise capital for expansion is high. They are not getting the full benefit of the global capital markets," Mr. Hodge said.
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Re: Bonds - Asians

Postby blid2def » Sat May 10, 2008 10:32 am

Winston - read the title again. "Bonds - Asians" hahaha... eh sounds like some damn kinky advertisement. :D
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Re: Bonds - Asians

Postby winston » Sat May 10, 2008 12:34 pm

grandrake wrote:Winston - read the title again. "Bonds - Asians" hahaha... eh sounds like some damn kinky advertisement. :D


Hmm... very soon, we going to have "Bond - Russians" too..
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Bonds

Postby sidney » Wed Sep 10, 2008 1:32 am

http://www.sgs.gov.sg/sgs_data/data_dailysgsprices.html

Can someone enlighten me how come 2 year SG Bonds pays higher coupons than 5,7,10, 15 yrs? Fundamentally bonds should pay higher coupons for longer lock-in bonds to compensate for oppounity cost for investors right?

Did i read wrongly? OR...

Is this govt monetary policy to "tighten" liquidity for next 2 years to tame inflation? If yes, moving forward, can i make a rough guess the next STI bull run is on jul 2010 since govt schedule to realise money to flood capital markets? Flow of money often leads to asset price increment.
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Misc. Investment Articles

Postby kennynah » Wed Sep 10, 2008 2:44 am

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...
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Misc. Investment Articles

Postby la papillion » Wed Sep 10, 2008 9:34 am

sidney wrote:http://www.sgs.gov.sg/sgs_data/data_dailysgsprices.html

Can someone enlighten me how come 2 year SG Bonds pays higher coupons than 5,7,10, 15 yrs? Fundamentally bonds should pay higher coupons for longer lock-in bonds to compensate for oppounity cost for investors right?

Did i read wrongly? OR...

Is this govt monetary policy to "tighten" liquidity for next 2 years to tame inflation? If yes, moving forward, can i make a rough guess the next STI bull run is on jul 2010 since govt schedule to realise money to flood capital markets? Flow of money often leads to asset price increment.


Hi sidney, no what. The yields are longer for longer time frame. For example, based on 9th Sept,

3mth is 1.10%
1 yr 1.27%
2 yr 1.42%
5 yr 2.28%
7 yr 2.60%
10 yr 3.11%
15 yr 3.40%
20 yr 3.51%

I'm not sure about bonds. But if i'm correct, the coupon rate is the amt paid out on face value (100). Ok, now I'm getting confused too.
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Re: Misc. Investment Articles ( former "Investor's Lounge" )

Postby sidney » Wed Sep 10, 2008 10:13 pm

la papillion wrote:
sidney wrote:http://www.sgs.gov.sg/sgs_data/data_dailysgsprices.html

Can someone enlighten me how come 2 year SG Bonds pays higher coupons than 5,7,10, 15 yrs? Fundamentally bonds should pay higher coupons for longer lock-in bonds to compensate for oppounity cost for investors right?

Did i read wrongly? OR...

Is this govt monetary policy to "tighten" liquidity for next 2 years to tame inflation? If yes, moving forward, can i make a rough guess the next STI bull run is on jul 2010 since govt schedule to realise money to flood capital markets? Flow of money often leads to asset price increment.


Hi sidney, no what. The yields are longer for longer time frame. For example, based on 9th Sept,

3mth is 1.10%
1 yr 1.27%
2 yr 1.42%
5 yr 2.28%
7 yr 2.60%
10 yr 3.11%
15 yr 3.40%
20 yr 3.51%

I'm not sure about bonds. But if i'm correct, the coupon rate is the amt paid out on face value (100). Ok, now I'm getting confused too.



According to textbks, coupons is the yearly payment as part of cashflow. Year 2 states coupon 4.625%. As for the "yield" for year 2 is 1.42%... what exactly does 1.42% mean huh?? Bond price above par at 1.42%???
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Re: Misc. Investment Articles ( former "Investor's Lounge" )

Postby la papillion » Wed Sep 10, 2008 10:56 pm

Hoho, u caught me, i dunno. Man...got to read up more on bonds..
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Re: Misc. Investment Articles

Postby OE2008 » Wed Sep 10, 2008 11:46 pm

If you hold the 2-year bond to maturity, the yield-to-maturity is 1.42% pa. Remember, the redeemed sum on maturity is the par value.
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Re: Misc. Investment Articles ( former "Investor's Lounge" )

Postby sidney » Sun Sep 14, 2008 3:29 pm

sidney wrote:
la papillion wrote:
sidney wrote:http://www.sgs.gov.sg/sgs_data/data_dailysgsprices.html

Can someone enlighten me how come Fundamentally bonds should pay higher coupons for longer lock-in 2 year SG Bonds pays higher coupons than 5,7,10, 15 yrs? bonds to compensate for oppounity cost for investors right?

Did i read wrongly? OR...

Is this govt monetary policy to "tighten" liquidity for next 2 years to tame inflation? If yes, moving forward, can i make a rough guess the next STI bull run is on jul 2010 since govt schedule to realise money to flood capital markets? Flow of money often leads to asset price increment.


Hi sidney, no what. The yields are longer for longer time frame. For example, based on 9th Sept,

3mth is 1.10%
1 yr 1.27%
2 yr 1.42%
5 yr 2.28%
7 yr 2.60%
10 yr 3.11%
15 yr 3.40%
20 yr 3.51%

I'm not sure about bonds. But if i'm correct, the coupon rate is the amt paid out on face value (100). Ok, now I'm getting confused too.



According to textbks, coupons is the yearly payment as part of cashflow. Year 2 states coupon 4.625%. As for the "yield" for year 2 is 1.42%... what exactly does 1.42% mean huh?? Bond price above par at 1.42%???


As mentioned by OE2008, 1.42% means yield or more commonly referred as yield to maturity (YTM). It is the returns projected (aka rate of returns) should u hold to maturity.

2 yr 1.42% is the yield versus the coupon paid at 4.625%. If YTM < coupon; par value of bond < bond price. Thus you can say the bond is traded at a premium.

Many ppl, including finance students are confused by yield and coupon rates. They are not the same. Yield or YTM is sometimes referred as effective/nominal yield or YTM bcos 1.42% is achieved PROVIDED you are able to (at least) reinvested the coupon at 4.625% for every paid-out cashflow. Hence bonds are affected by mainly interest rate risk.

Why are yield and coupon rates are not the same? It depends on the risk characteristics of the issued bonds. Coupons derived their rates from... risk

Risk
1) interest rate risk refers to price risk + reinvestment risk. The ability to consistently reinvest its coupons at (at least) 4.625% poised as reinvestment risk bcos in the investment world, this is unlikely to happen.

2) Liquidity risk. The ability to trade the asset at nearly fair value. This is determined by our commonly known "bid-ask spread". A narrow spread indicates liquidity.

3) Call and reprepayment risk. Call risk is detriment to bond holders bcos the issuer is able to recall the higher coupon bonds and issued lower paying coupon bonds. Reprepayment risk is for Mortage backed securities (MBS). Mortage lenders often imbedded "Lock-in" to shelter from early reprepayment risk. Thus ppl who took bank loans cannot repay early even if they could due to early repayment penalty.

4) Inflation risk. This one of the most important risk which leave investors LPPL. Inflation is caused by "too much money chasing too little goods." As economy has stomach upset, unable to pooh pooh their money effectively , hence too much money storking on assets, leading to asset price increases. At current inflation near at 7%, coupon payment at 4-plus % offers little consolation.

5) Other risks. Event risk, sovereign risk, volatity risks, other bonds coventents.

As how come 2 years lock-in SG Bonds pays higher coupons than 5,7,10, 15 yrs lock-in.. The possible reason i can think of is the current unusually high inflation premium inbedded in calculation of coupon rates.
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