Tuesday, December 08, 2009

Temasek 20 and 30 year bonds

Temasek Holdings has issued 20 and 30 year bonds paying a coupon rate of 4% and 4.2% respectively. Based on the issue price (which is slightly below par), the bonds offer a slightly higher yield of 4.149% and 4.37% respectively.

Temasek Holdings has a AAA rating from S&P and Aaa rating from Moody's. These are the highest rating available for bonds. The credit risk is as low as government bonds.

However, there is the risk of a change in interest rate. If a 20 year bond yields 4% and the interest rate for this duration increases to 5%, the prices of the bonds will drop by 8.4%  If the interest rate increases to 7% (due to high inflation), the price of the bonds will drop by 28%. When you invest in a long term bond, your return is locked up for this period. You only suffer a capital risk if you decide to sell off the bonds prematurely on the market.

The bonds will refund the principal in full at the maturity date, i.e. the end of the period.
For retirees who wish to have an regular income of a higher yield over 20 and 30 years, this is a good choice. Many insurance companies invest in these type of bonds, but they take away 2% from their policyholders, giving a net yield that is much lower. It is better for the retiree to invest directly in these bonds.

I have asked my bank and stockbroker to tell me how these bonds can be purchased. I will post the findings later.

Tan Kin Lian


skeptic said...

With all this talk about potential 'hyper' inflation, is it prudent to invest in bonds?

It would be nice if there was inflation protection like the US TIPS.

Tan Kin Lian said...

With high unemployment and a weak economy, it is likely that interest rate will remain low.

skeptic said...

Tan Kin Lian said...
"With high unemployment and a weak economy, it is likely that interest rate will remain low."

Yes maybe for the next 5-10 years but 20 years, let alone 30 years, it is too long to predict rates.

If the Temasek bond was 5-10 years, it would look attractive but 20/30 years is too unpredictable.

Please note that I am speaking as someone who is very far away from retirement but for retirees or near retiring, I agree with you that it makes more sense to get more fixed income than equities.

Anonymous said...

Inflation hedged bonds are a little bit messy and I don't Sg will issue them.
For SGS the only risk for bond holder if he holds to maturity is inflationary risk.
Rule of thumb, for every 1% increase in interest rate about 10% drop in price. Long term bonds are risky.

Anonymous said...

Anyone knows how to purchase these Bonds ? DBS Bank no helpful when I enquire from them.

Anonymous said...

Buy from Fundsupermart.

Anonymous said...

If these bonds are in USD, then we are exposed to another layer of risk ie forex.


Anonymous said...

For SGS bills/bonds you can "buy" at local bank ATMs -- go to Other Services and select non-competitive bidding. Before you even do anything, check out www.sgs.gov.sg first!

The rates are quite pathetic really, so I personally prefer to put short-term money into money mkt funds.

The above for new SGS issues or re-issues. For those already issued, can buy from secondary market using online brokers like Fundsupermart or Poems.

As for stat board & GLC bonds, I think the govt really don't bother with the ordinary folks, despite probably very high demand (just looks at the minibonds saga!). Govt knows these bonds are very highly sought after by institutional investors, and probably easier to deal with a few large players than open up for mass subscription at the ATMs.

As I wrote earlier, I bet the recent Cap Plus by Income is to source for cheap funds to buy into this Temasek bonds.

I long for the time in 1999 when I could subscribe to DBS 7-yr bond paying 6% coupons at the ATM! Too bad it was callable and DBS redeemed it in 2003 when interest rates were slashed like crazy.


Anonymous said...

oh btw, this tumasick bonds already fully subscribed and supposed to trade from 8 Dec.

So all of us retail investors if want to buy, must buy from secondary mkt. Problem for these bonds is that they r usually illiquid and subject to high bid-offer spreads. I,e. Price may be higher than par, and end up with yield < 4%.

Best outcome is for govt to wake up and allow retail subscription at ATM for such govt and quasi-govt bonds (no pref shares please!). As s'pore population ages and people needing better deals than pathetic endowments.

I think a number of people such as leong sze hian had already suggested this in newspaper forum and some websites.


Anonymous said...

AIG is AAA. It collapsed and went burst.

So that can happen to Temasek or any god damn company in this miserable corrupted world.

Never trust the rating of the rating agencies.

Anonymous said...

Twenty to thirty years period is a very long time. With Temasek's haphazard way of investment record, nobody could tell what may happen in this long period of time.
Even SWFs funds are not foolproof.
Look at Dubai World mess, it's a Govt-backed business entity. Yet the Govt over there deny responsibility of its debts.
What about of our Temasek? Nobody is held accountable to the losses, the Board of Directors and the management stay the same, and we are talking about losses of public funds.
We rather manage our own wealth.

Anonymous said...

30 years is to buy time mah, in case near insolvency can go to casino to try luck. Risk, of course there is but not the issuer take.

Lion Investor said...

Such corporate bonds are traded on the bond secondary narket.

Any stock broker would be able to put in an order for you.

Note that min sum required is S$250,000.

VS Lingam said...

There is some talk about "money market funds" that may offer comparable yields to the 1.6%, 2-yr product offered by a leading insurer. Can Mr TKL or some kind soul explain this type of investment in plain English, pls. I could not find such info on Fisca website. Can such products be purchased online thru trading houses? Any specific product names (viz SGX stock codes) so that one can look up the details ourselves?

Alternatively pls provide links to websites that explain this investment product. Tks so much.

Anonymous said...

VS Lingam,
too bad, your agent is a salesman who is only interested to make money out of you. Why take responsibility to tell you about money markets especailly when he or she cannot charge you anything? You got a good salesman, a super duper one or super duping one. Your interest is not his or her interest.

Anonymous said...

I believe these are US$ bonds. As such, am surprised that Mr. TKL did not refer to the currency exposure when recommending these as "attractive". Temasek has raised 10-, 20- and 30-year funds. Clearly they think rate risk is high (or that capital may become scarce again) and they should raise as much as they can at current low rates. I don't think this is by any means "attractive". At best, it is for someone desperate for US$ yield or for those willing to leverage, lock in your funding cost and hold till maturity. If the economy stays weak and rates stay low as Mr. TKL believes, there are better yield plays out there. Ask your banker.

Tan Kin Lian said...

Hi 12.07 PM

I got the impression that they are SGD bonds. The statement said that Temasek is raising SGD 600 million from these bonds. There was also a statement that they are used as benchmark for long term interest rate in SGD.

I agree that the statement from Temasek is not clear on this point.
Perhaps someone can verify it.

Anonymous said...

This most recent 20-yr & 30-yr bonds are denominated in SGD.

Temasek also offered 10-yr bonds (can't remember if also got 20-yr?) sometime in Nov 2009. That was denominated in USD. More attractive for western institutional investors.

SOP for Temasek is to price coupons for USD-denominated at 1% above the same-duration US govt bonds. If remember correctly, coupon came up to about 4.3X% becoz at that time 10-yr US bonds yielding 3.3X%.


LACH said...

I'm one of those interested to buy this 30yr USD TFB. Point to note that the quantum is USD 250k per pop. Till now, I have not been able to find a weblink on how we can check the prices of these bonds ourselves. I meant ourselves any time, anywhere and not calling your RM or dealer. Unfortunately, the answer is no. Next, when you buy such an amount, which is out of reach for many investors, you better have adequate knowledge on the US Fed rate direction in 2010. This is to avoid getting in too early. Gone are the days where u trust someone else to tell you when is a good time or bad time. TKL cannot be there to assist, as this bond non-sociliation type. FX risk is also another concern. When such concerns can be greatly mitigated if one has a very long horizon, its feels great to have a sense of timing and get it right after you bought, hopefully the bond price goes up and you are in-the-money. BUT, this is never the case. Why is that so? ... I reveal more common sense if anyone likes to know...

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