My bank told me that Temasek 15 year bond is available in the secondary market at a yield of 3.65%. There is a commission of 0.5% payable to the bank. The minimum investment amount is $200,000.
Sound like not too bad a deal. Temasek is safe. It's rating is AAA, the top rating. After deducting the commission, the yield comes to slightly more than 3%. It is better than bank fixed deposit. Rich people ($200000 in cash is not small amount) does not need very high yield, they need security. However, if the investor needs money, who can he sell to? Is it through the underwriter, or private bankers? Can he resell it in parts? Is there a secondary market for the bond?
AAA rated now does not mean it will maintain its rating throughout the long period. Temasek's bungling of its recent investments may leave a distaste for this SWF, and question the people behind this Wealth Fund's capability to run it.
Question: - why can't retail investor buy direct via ATM so that they can avoid the 0.5% commission?
- is 0.5% too high or too low a commission rate?
- If 3.65% or 3.15% represents the risk-free rate of return here in Singapore, what's the rate of return on the riskier assets like mini-bonds and insurance policies? Being riskier instruments, they should pay higher than 3.65/3.15% right?
Just to share, this is a private placement meant for Accredited investors. and the 0.5% commission is already calculated into Yield. It's a 15 years bond that is traded on the OTC market. It is a plain vanilla bond and not to be mixed up with mini-bonds.
OK, first and foremost, that commission is absolute extortion. Off the top of my head, Saxo charges 8bp (0.08%) for bond trades, and Interactive Brokers charges 2.5bps for tickets that size; 50bp is nuts.
And Temasek doesn't have any 15-year bonds outstanding. There's a Dec 2029 SGD bond, but that's more of a 20yr than a 15yr. (I'm assuming that's the one you're talking about?)
John Tham and Anonymous@1:54pm are both a bit wrong about the final yield calculation. The 3.65% is an annual yield, but the 0.5% comm is a one-time fee - net of fees, the yield's going to be more like 3.625%. (50bps is still too much to pay, though.)
Anonymous@1:18pm... do some research. This is not a minibond. This is a boring vanilla bond issued by a boring vanilla issuer - and that's why they called them "mini-bonds", because they wanted you to think that minibonds were as safe and boring as real bonds. The reason it yields 3.65% is that it's a 15-year expiry, and that high yield is the price Temasek has to pay for borrowing long-term.
Anonymous@1:54pm has the right idea about the risk-free rate, but you can't directly compare the Temasek bonds with a minibond or insurance policy. Firstly, Temasek's not really the "risk-free rate" - that title belongs to Singapore government bonds, which are trading about 3.4% for a 20-year.
And secondly, the minibonds tend to be a lot shorter maturity than these bonds. The 5-year SGS "risk-free" rate is about 1.35%, and that's what you should benchmark your 5-year structured-mini-pinnacle-high-deposit-note-explodey-thingy against.
Aiyah! Accredited Investor means "Rich" Investors!
So those of us with HDB home addresses need not waste our time with this discussion.
Just a bit puzzled as to why Temasek bonds (especially if it's just a plain vanilla type) has to be restricted to Accredited Investors.
I would have imagined that mini-bonds and Pinnacle Notes type of investments should have been restricted to Accredited Investors.
And Temasek Bonds should have been open to everybody since it is plain vanilla and safe for all the HDB aunties and uncles.
Definition of Plutocracy: Plutocracy is rule by the wealthy, or power provided by wealth. The combination of both plutocracy and oligarchy is called plutarchy.
In a plutocracy, the degree of economic inequality is high while the level of social mobility is low.
Perspectives Of Life said... "Just to share, this is a private placement meant for Accredited investors. and the 0.5% commission is already calculated into Yield. It's a 15 years bond that is traded on the OTC market. It is a plain vanilla bond and not to be mixed up with mini-bonds."
February 25, 2010 3:53 PM
Under the Securities and Futures Act, an accredited investor means
(i) an individual —
(A) whose net personal assets exceed in value S$2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount; or
(B) whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount.
This definition would rule out most people. Or maybe not since there may be a lot of rich folks around.
Buyers please be aware that 1. Bond prices moves inversely with interest rate ie. if interest rate moves up substantially in the next 15 years, the bond price will fall if you decide to sell before maturity. 2. If the credit rating for Temasek should weaken in the next 15 years, your credit spread will widen and the prices of bond may fall.
You have a better idea of why this product is for accredited investor.
If you negotiate, you can get away with 25bp commission.
One can buy the preference shares of the three local banks, issued back in 2008, and all gave close to 5% or at least 4% yield after deducting brokerage and prevailing traded prices. No need for minimum 200 grand.
Caveat: suggestion only, please do own due diligence.
Hi Anon 12.54am, Yes, the UOB and OCBC pref shares give 5.05%pa and 5.1%pa respectively. Years ago, DBS pref shares gave 6%pa! Compared to them, this bond's yield was nothing to cheer about. And I recalled to buy these pref shares, one does not need min 200k.
There are many reits and shipping trust that gives far more attractive yields then this Temasek Bond. You can easily get 6% and with improving economy some capital gains too. You can cash out any time if you want, better than bonds. I would advice people to go reits currently
Bearing in mind that many visitors to this blog was introduced to it because of their bad experience with structured deposit products, I am cautious about fellow bloggers recommending reits, shipping trusts and pref shares. Each product carries different features and risks. Bloggers who are more knowledgeable will do well to point out the pluses and minuses of the products instead of focusing just on the yield - the very root of the problem for many victims of failed structured products. Perhaps, TKL may want to feature a section on products risk in his financial planning book for which I have not had the pleasure of reading.
Yes, you have hit the right spot... during the collapse of last yrs stock mkt... the only stock that I picked up was some of these preference shares at below par... and sold it at slightlly above par recently after collecting 2 rounds of interest.
The reason I sold was because I dont trust what is going on in the markets, I expect another drop... when, agn I will pick up these preference shares at below par... and will proabably hold them, this time for a longer term.
Why bother abt all the other scam products marketed by banks and insurance companies, when these preference shares are liquid,( no tie down period ) and provide returns from 5-6% in this rididulously low interest rate enviroment. Barring the collapse of any of our three local banks.. this is as good as it gets.
Keep some REITS Keep some Banks Keep some multi-industry Keep some transport Keep some cash
Avoid retail - forever Avoid manufacturing - forever Avoid bio-medicals - forever Avoid debt - forever ( regardless of what others say )
Buy only with your spare cash or CPF.
I have bought Cerebos,SPH,Sembcorp and Singtel using CPF since 1993 and have not sold them. Each of them have returned more than 6%. The dividends have paid for the cost of 3 of them already and I am still getting dividends.
You do not need to buy 10,000. Buy with what you can afford but diversify.
I only have 2000 shares of each company. Was it difficult to do?
Sound like not too bad a deal. Temasek is safe. It's rating is AAA, the top rating. After deducting the commission, the yield comes to slightly more than 3%. It is better than bank fixed deposit. Rich people ($200000 in cash is not small amount) does not need very high yield, they need security. However, if the investor needs money, who can he sell to? Is it through the underwriter, or private bankers? Can he resell it in parts? Is there a secondary market for the bond?
ReplyDeleteThe yield is too low for many. For the rich , ok. but who can afford $200K?
ReplyDeleteShares in Singapore will give a return in dividends of about the same already, (2009 prices ).. and it is easily traded if you need to liquidate.
ReplyDeleteLock it in if you feel you need the stability.. otherwise keep it as liquid as can.
Yields are more than 3% for a reason.
ReplyDeleteRemember Minibonds and what not touted by banks which used to have 5% yield?
Just like if properties are cheap, there is a reason or reasons.
Hence must know and evaluate the reasons whether acceptable to one's own situation.
AAA rated now does not mean it will
ReplyDeletemaintain its rating throughout the
long period.
Temasek's bungling of its recent
investments may leave a distaste
for this SWF, and question the
people behind this Wealth Fund's
capability to run it.
Let's see:
ReplyDelete3.65% less 0.5% commission will be 3.15%
Question:
- why can't retail investor buy direct via ATM so that they can avoid the 0.5% commission?
- is 0.5% too high or too low a commission rate?
- If 3.65% or 3.15% represents the risk-free rate of return here in Singapore, what's the rate of return on the riskier assets like mini-bonds and insurance policies? Being riskier instruments, they should pay higher than 3.65/3.15% right?
Just to share, this is a private placement meant for Accredited investors. and the 0.5% commission is already calculated into Yield. It's a 15 years bond that is traded on the OTC market. It is a plain vanilla bond and not to be mixed up with mini-bonds.
ReplyDeleteMr Tan,
ReplyDeleteI am interested and may I ask which bank offers this deal.
The 0.5% commission to the bank may be a bit difficult to swallow.
Thanks.
OK, first and foremost, that commission is absolute extortion. Off the top of my head, Saxo charges 8bp (0.08%) for bond trades, and Interactive Brokers charges 2.5bps for tickets that size; 50bp is nuts.
ReplyDeleteAnd Temasek doesn't have any 15-year bonds outstanding. There's a Dec 2029 SGD bond, but that's more of a 20yr than a 15yr. (I'm assuming that's the one you're talking about?)
John Tham and Anonymous@1:54pm are both a bit wrong about the final yield calculation. The 3.65% is an annual yield, but the 0.5% comm is a one-time fee - net of fees, the yield's going to be more like 3.625%. (50bps is still too much to pay, though.)
Anonymous@1:18pm... do some research. This is not a minibond. This is a boring vanilla bond issued by a boring vanilla issuer - and that's why they called them "mini-bonds", because they wanted you to think that minibonds were as safe and boring as real bonds. The reason it yields 3.65% is that it's a 15-year expiry, and that high yield is the price Temasek has to pay for borrowing long-term.
Anonymous@1:54pm has the right idea about the risk-free rate, but you can't directly compare the Temasek bonds with a minibond or insurance policy. Firstly, Temasek's not really the "risk-free rate" - that title belongs to Singapore government bonds, which are trading about 3.4% for a 20-year.
And secondly, the minibonds tend to be a lot shorter maturity than these bonds. The 5-year SGS "risk-free" rate is about 1.35%, and that's what you should benchmark your 5-year structured-mini-pinnacle-high-deposit-note-explodey-thingy against.
Aiyah! Accredited Investor means "Rich" Investors!
ReplyDeleteSo those of us with HDB home addresses need not waste our time with this discussion.
Just a bit puzzled as to why Temasek bonds (especially if it's just a plain vanilla type) has to be restricted to Accredited Investors.
I would have imagined that mini-bonds and Pinnacle Notes type of investments should have been restricted to Accredited Investors.
And Temasek Bonds should have been open to everybody since it is plain vanilla and safe for all the HDB aunties and uncles.
Definition of Plutocracy:
Plutocracy is rule by the wealthy, or power provided by wealth. The combination of both plutocracy and oligarchy is called plutarchy.
In a plutocracy, the degree of economic inequality is high while the level of social mobility is low.
Source:http://en.wikipedia.org/wiki/Plutocracy
Perspectives Of Life said...
ReplyDelete"Just to share, this is a private placement meant for Accredited investors. and the 0.5% commission is already calculated into Yield. It's a 15 years bond that is traded on the OTC market. It is a plain vanilla bond and not to be mixed up with mini-bonds."
February 25, 2010 3:53 PM
Under the Securities and Futures Act, an accredited investor means
(i) an individual —
(A) whose net personal assets exceed in value S$2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount; or
(B) whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount.
This definition would rule out most people. Or maybe not since there may be a lot of rich folks around.
Buyers please be aware that
ReplyDelete1. Bond prices moves inversely with interest rate ie. if interest rate moves up substantially in the next 15 years, the bond price will fall if you decide to sell before maturity.
2. If the credit rating for Temasek should weaken in the next 15 years, your credit spread will widen and the prices of bond may fall.
You have a better idea of why this product is for accredited investor.
If you negotiate, you can get away with 25bp commission.
One can buy the preference shares of the three local banks, issued back in 2008, and all gave close to 5% or at least 4% yield after deducting brokerage and prevailing traded prices. No need for minimum 200 grand.
ReplyDeleteCaveat: suggestion only, please do own due diligence.
hi, is the 3.65 a yearly yield or only a one time return after 15 years?
ReplyDeleteHi Anon 12.54am,
ReplyDeleteYes, the UOB and OCBC pref shares give 5.05%pa and 5.1%pa respectively.
Years ago, DBS pref shares gave 6%pa!
Compared to them, this bond's yield was nothing to cheer about.
And I recalled to buy these pref shares, one does not need min 200k.
starlight
There are many reits and shipping trust that gives far more attractive yields then this Temasek Bond. You can easily get 6% and with improving economy some capital gains too. You can cash out any time if you want, better than bonds. I would advice people to go reits currently
ReplyDeleteBearing in mind that many visitors to this blog was introduced to it because of their bad experience with structured deposit products, I am cautious about fellow bloggers recommending reits, shipping trusts and pref shares.
ReplyDeleteEach product carries different features and risks.
Bloggers who are more knowledgeable will do well to point out the pluses and minuses of the products instead of focusing just on the yield - the very root of the problem for many victims of failed structured products.
Perhaps, TKL may want to feature a section on products risk in his financial planning book for which I have not had the pleasure of reading.
12:04 AM :
ReplyDeleteYes, you have hit the right spot... during the collapse of last yrs stock mkt... the only stock that I picked up was some of these preference shares at below par... and sold it at slightlly above par recently after collecting 2 rounds of interest.
The reason I sold was because I dont trust what is going on in the markets, I expect another drop... when, agn I will pick up these preference shares at below par... and will proabably hold them, this time for a longer term.
Why bother abt all the other scam products marketed by banks and insurance companies, when these preference shares are liquid,( no tie down period ) and provide returns from 5-6% in this rididulously low interest rate enviroment. Barring the collapse of any of our three local banks.. this is as good as it gets.
Have a diversified portfolio.
ReplyDeleteKeep some REITS
Keep some Banks
Keep some multi-industry
Keep some transport
Keep some cash
Avoid retail - forever
Avoid manufacturing - forever
Avoid bio-medicals - forever
Avoid debt - forever ( regardless of what others say )
Buy only with your spare cash or CPF.
I have bought Cerebos,SPH,Sembcorp and Singtel using CPF since 1993 and have not sold them. Each of them have returned more than 6%. The dividends have paid for the cost of 3 of them already and I am still getting dividends.
You do not need to buy 10,000.
Buy with what you can afford but diversify.
I only have 2000 shares of each company. Was it difficult to do?
You decide.