What Kind Of SGD Bonds To Buy
In an interest rate rising environment, bonds that have short term maturity & bonds with coupon reset feature will still do well.
Below are the list of SGD bonds (except HDB bond) that could still pay a decent yield and likely not suffering much capital loss.
Why is that so? Isn't finance textbook says when interest rate goes up, bond prices will come down?
In the case of FCL (Frasers Centrepoint) Treasury bond, it will mature in 2021 which is just 5 years away. As long as the bond does not default, investors will get to redeem the bond at 100 on 7 Oct 2021.
=> Hence bonds with shorter maturity are less sensitive to interest rate hikes.
In the case of BPCE bond (ticked), though its maturity is at 3 June 2026, this bond has a call date on 3 June 2021. This means that if SGD interest goes up by 3 June 2021, the coupon of the bond will be reset to prevalent SGD 5 years swap rate + 2.45%.
=> Hence the bond will either increase the coupon or the issuer BPCE will call back the bond (most issuer does not want to pay a higher coupon).
BPCE bond offers the highest yield to call of 4.05% in the list. Most investors probably have not heard of the issuer, but it is the second largest bank in France.
www.groupebpce.fr/mobile_en/Journalists/News-and-Press-releases/Corporate-governance/BPCE-creation-of-France-s-second-largest-banking-group
Below are the list of SGD bonds (except HDB bond) that could still pay a decent yield and likely not suffering much capital loss.
Why is that so? Isn't finance textbook says when interest rate goes up, bond prices will come down?
In the case of FCL (Frasers Centrepoint) Treasury bond, it will mature in 2021 which is just 5 years away. As long as the bond does not default, investors will get to redeem the bond at 100 on 7 Oct 2021.
=> Hence bonds with shorter maturity are less sensitive to interest rate hikes.
In the case of BPCE bond (ticked), though its maturity is at 3 June 2026, this bond has a call date on 3 June 2021. This means that if SGD interest goes up by 3 June 2021, the coupon of the bond will be reset to prevalent SGD 5 years swap rate + 2.45%.
=> Hence the bond will either increase the coupon or the issuer BPCE will call back the bond (most issuer does not want to pay a higher coupon).
BPCE bond offers the highest yield to call of 4.05% in the list. Most investors probably have not heard of the issuer, but it is the second largest bank in France.
www.groupebpce.fr/mobile_en/Journalists/News-and-Press-releases/Corporate-governance/BPCE-creation-of-France-s-second-largest-banking-group
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