Sunday, June 29, 2014

SGX Retail Bonds

Just the other day, I overhead a son and his mother inquiring about purchasing some bonds. The person they were asking recommended equities instead. No surprise.

Anyway, since the retail bond arena in Singapore is so small and tiny, I thought I'd give it a look at see what options are there for the retail investor like you and since. Only "accredited" investors can invest in the whole array of other bonds available, but of course, you need $250,000 to put into a single bond issue. Don't have that kind of money? Don't sweat it, let me show you what you can get as a small-time retail investor!


The Singapore bond scene is really really small. Like really small.

There are 4 normal retail bonds. There is 1 issue in USD. There are 2 perpetuals.

As you can see, obviously the longer dated bonds have a higher yield. Both the CapitaMalls issues have yields which I think is quite decent. Both the LTA and SIA issue are definitely better than cash deposits, but almost equal to some fixed deposits out there on promotion.

The pricing seems quite fair, but that is probably because all the issues are considered investment-grade. Even though LTA is unrated, it is a government agency. SIA is also majority owned by Temasek Holdings. Even TigerAir is owned largely by SIA. I think all the retail bond issues listed on the SGX are quite safe in the event of any major crisis.

I don't really want to group "perps" into the same classification as bonds, but that's the way that SGX does it, so that's why it is here. I would prefer to compare perps with preferred stocks or annuities. I will probably be doing a follow-up post sometime in the future about preferred stocks and perps, because I find them more along the same lines rather than bonds. Preferred stocks almost seem like callable bonds.

Anyway, on top of my previous recommendation of various bond funds offered by Phillip, I am also now considering to get direct ETF exposure into some bond ETFs offered by iShares.

What is interesting is that their ETFs come in both USD and SGD flavours. The SGD version is not hedged, but you do not incur currency conversion costs to purchase it, which is always good and saves at least 0.5% and the hassle.


Personally, I would invest in the QL0, 1-3 Year ETF because of it's low interest rate risk, low credit risk and decent yields over the bank deposit rates. However, anything below 4% does not really interest me, especially with the availability of the UOB SGD Fund Class A unit trust, which is my go-to bond fund.

The USD ETFs looks like a good one to me, but only if there is a global crisis unrelated to currencies. The main drawback that I see is that its issues are in USD. I think many people out there know that I have extremely low faith in the USD as a currency moving forward.

I was prompted to look into bond ETFs after reading a post by DIY Income Investor about his purchase into an EM local government bond ETF. Unfortunately, there is no such similar ETF product available to us. The best alternatives are the Barclays Asia Local Currency bonds which are all investment-grade and issued by governments in Asia, but not other emerging markets like Brazil or Poland (I briefly checked, don't take my word for it). The only way to get that kind of exposure is through an ETF on another exchange, or through a unit trust. I have an investment with the UOB EM Bond unit trust. It has been doing pretty well for me, up more than 5% since I invested in it during the period where people were freaking out that a QE tapering will destroy emerging markets. Not a bad contrarian bet so far, I must say.

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