Earns High Single Digit Return Consistently
We all love consistency. Winning day in and day out means we’re getting ahead and making money. As long as our investments are making money, we don’t really complain. We can achieve that using leverage bonds investment.
One of the benefit of opening a private bank accounts is to get cheap loans.
=> Borrowing cost for SGD & USD is only 2.00%.
=> Borrowing cost for EUR & JPY is only 1.00%.
=> Borrowing cost for GBP is only 1.30%.
Using this cheap loans, the client can leverage up into low risk investment like bonds and achieve equity-like returns without taking on equity risk.
Here is the calculation:
Say a private bank client bought into a USD200,000 investment grade bond that pays yield to maturity of 4.50%.
Assume that the borrowing cost is 2.00%. Advance margin (lending value) of the bond is 75%. Loan for the trade is 60%.
Loan for the trade is 60%, this means that the client has to pay 40% in capital.
Loan amount: 40% x USD200,000 = USD80,000.
Capital: USD80,000
Since yield to maturity is 4.50%, annual yield generated from this USD80,000 is: USD3,600.
Client has taken a loan of 60%, loan amount would be: 60% x USD200,000 = USD120,000.
Client will still generate 4.50% from this amount but the client has to pay 2.00% borrowing cost to the bank.
This USD120,000 will generate a net yield of 4.50% - 2.00% (interest cost).
Yield generated from this USD120,000 is: (4.50% - 2%) x USD120,000 = USD3000.
Total yield generated from the bond annually is USD3,600 + USD3,000 = USD6,600.
Since capital outlay is USD80,000, annualized return for the trade would be USD6,600/USD80,000 = 8.25%.
Leverage return for the bond trade is 8.25%.
8.25% annualized return is an equity-like return. Many equity investors are not able to generate 8.25% consistently.
Requirement to open a private bank account is SGD2mil. If you are looking for a private banker, send me a message using the "Contact Form" on the right, I can recommend my friends to you.
One of the benefit of opening a private bank accounts is to get cheap loans.
=> Borrowing cost for SGD & USD is only 2.00%.
=> Borrowing cost for EUR & JPY is only 1.00%.
=> Borrowing cost for GBP is only 1.30%.
Using this cheap loans, the client can leverage up into low risk investment like bonds and achieve equity-like returns without taking on equity risk.
Here is the calculation:
Say a private bank client bought into a USD200,000 investment grade bond that pays yield to maturity of 4.50%.
Assume that the borrowing cost is 2.00%. Advance margin (lending value) of the bond is 75%. Loan for the trade is 60%.
Loan for the trade is 60%, this means that the client has to pay 40% in capital.
Loan amount: 40% x USD200,000 = USD80,000.
Capital: USD80,000
Since yield to maturity is 4.50%, annual yield generated from this USD80,000 is: USD3,600.
Client has taken a loan of 60%, loan amount would be: 60% x USD200,000 = USD120,000.
Client will still generate 4.50% from this amount but the client has to pay 2.00% borrowing cost to the bank.
This USD120,000 will generate a net yield of 4.50% - 2.00% (interest cost).
Yield generated from this USD120,000 is: (4.50% - 2%) x USD120,000 = USD3000.
Total yield generated from the bond annually is USD3,600 + USD3,000 = USD6,600.
Since capital outlay is USD80,000, annualized return for the trade would be USD6,600/USD80,000 = 8.25%.
Leverage return for the bond trade is 8.25%.
8.25% annualized return is an equity-like return. Many equity investors are not able to generate 8.25% consistently.
Requirement to open a private bank account is SGD2mil. If you are looking for a private banker, send me a message using the "Contact Form" on the right, I can recommend my friends to you.
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