CZM and I have been pretty busy preparing for our wedding and honeymoon. Some of the stuff we did include printing of our wedding invitation at TDragon (a reader once commented that our site looks "obiang". I thought so too until I visited their site but do not judge a book by its cover. The whole process was simple and smooth), manually making the invitation cards, extending the invitation, tracking the attendance and arranging the tables. Hunting for hotels, looking for BRG (Best Rate Guarantee) and attempting to make it cheaper and the cycle repeats. On a side note, we had our food tasting last weekend and the 提亲 was a success! There was some awkward silence here and there as well as funny moments but definitely much better than expected. Let's get to the main point...
This post probably came a bit late since the application started on 6th June and will end tomorrow (12th June 12pm). I usually only blogged about things I am interested in after researching on them but after seeing so many blogs and articles stating how "good" it is, I decided to play the devil's advocate and said why we are not interested in it/not find it attractive.
1. Are you really participating in the PE (Private Equity) funds?
In my opinion, this would have been really attractive if this is packaged as a PE ETF instead of a PE bond. lol. At the end of the day, you have to understand the difference between a bond and equity. As a bondholder, you are merely the "lender" and you play no part in the business. Regardless how well the funds do (double or triple-digit returns have no impact on you), your investment will not "grow". The only important thing that matters is that there will be sufficient money to pay your coupon and redeem the bonds.
One of the perks of investing in PE is that you will be able to experience a ridiculous amount of growth, double-digit growth or sometimes even >100% gain as compared to a maximum of 100% loss. On the other hand, this bond meant that the gain will only be 4.35% + a little bit of premium upon maturity as compared to a maximum of 100% loss although the default risk is low.
2. Capital is not guaranteed before maturity
I know it may sound ridiculous but my concern is people may think that the Astrea IV Bond is the same as Singapore Savings Bond since both came from the "government". Just so you know, although the Astrea IV Bond is "packaged" and issued by Temasek, they do not guarantee it.
The above chart belongs to Perennial n4.55%200429, one of the listed bonds with coupon closer to the Astrea bond (4.35%). Once the Astrea bond lists in the secondary market/SGX on 18th June 2018, it will trade like an equity/stock where price is driven by demand and supply. You can only sell when there is a buyer on the other side and vice versa. Are you prepared for the volatility?
3. Rising interest rate = Lower bond price
I remember back in NTU, I took an elective in "Business Finance" where we had to price/value the different bonds and one of the factors affecting its price is the interest rate. If you would like to understand how it works, this article might help - An Introduction to Bonds, Bond Valuation & Bond Pricing. If formula and numbers do not work for you, an easier article to read is Why Bond Prices Go Up and Down. Think about it, if Astrea V Bond comes out in the future with a higher coupon (due to the rising interest rate), the only way others will buy Astrea IV is when the price is lower so that its coupon rate will be relatively higher. I am pretty sure that the Astrea III bondholders have lost some of their capital but I could not find any information on it.
What are thebetter other alternatives?
It really depends on individual's risk appetite/profile. If you still want to be a legitimate ah long/debt lender, there is MoolahSense (shorter tenure, much higher returns --> higher risks). A more conservative ah long can consider the Singapore Savings Bonds (SSB) where your capital is guaranteed. Not forgetting our CPF SA which gives 4-5% interest + tax savings - CPF RSTU - Is It Worth It? Alternatively, you can also become a "property owner" (1mm x 1mm or is that still too much) through Lion-Philip S-REIT ETF - New Singapore Budget, New REIT Strategy! with dividend yield > 5%.
CZM and I will take that $2 and go buy the $8 million ToTo draw instead. Hahahahaha.
Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)
4. Instagram - KPO_and_CZM (Did you see those delicious food photos to the right -->)
This post probably came a bit late since the application started on 6th June and will end tomorrow (12th June 12pm). I usually only blogged about things I am interested in after researching on them but after seeing so many blogs and articles stating how "good" it is, I decided to play the devil's advocate and said why we are not interested in it/not find it attractive.
1. Are you really participating in the PE (Private Equity) funds?
In my opinion, this would have been really attractive if this is packaged as a PE ETF instead of a PE bond. lol. At the end of the day, you have to understand the difference between a bond and equity. As a bondholder, you are merely the "lender" and you play no part in the business. Regardless how well the funds do (double or triple-digit returns have no impact on you), your investment will not "grow". The only important thing that matters is that there will be sufficient money to pay your coupon and redeem the bonds.
One of the perks of investing in PE is that you will be able to experience a ridiculous amount of growth, double-digit growth or sometimes even >100% gain as compared to a maximum of 100% loss. On the other hand, this bond meant that the gain will only be 4.35% + a little bit of premium upon maturity as compared to a maximum of 100% loss although the default risk is low.
2. Capital is not guaranteed before maturity
I know it may sound ridiculous but my concern is people may think that the Astrea IV Bond is the same as Singapore Savings Bond since both came from the "government". Just so you know, although the Astrea IV Bond is "packaged" and issued by Temasek, they do not guarantee it.
The above chart belongs to Perennial n4.55%200429, one of the listed bonds with coupon closer to the Astrea bond (4.35%). Once the Astrea bond lists in the secondary market/SGX on 18th June 2018, it will trade like an equity/stock where price is driven by demand and supply. You can only sell when there is a buyer on the other side and vice versa. Are you prepared for the volatility?
3. Rising interest rate = Lower bond price
I remember back in NTU, I took an elective in "Business Finance" where we had to price/value the different bonds and one of the factors affecting its price is the interest rate. If you would like to understand how it works, this article might help - An Introduction to Bonds, Bond Valuation & Bond Pricing. If formula and numbers do not work for you, an easier article to read is Why Bond Prices Go Up and Down. Think about it, if Astrea V Bond comes out in the future with a higher coupon (due to the rising interest rate), the only way others will buy Astrea IV is when the price is lower so that its coupon rate will be relatively higher. I am pretty sure that the Astrea III bondholders have lost some of their capital but I could not find any information on it.
What are the
It really depends on individual's risk appetite/profile. If you still want to be a legitimate ah long/debt lender, there is MoolahSense (shorter tenure, much higher returns --> higher risks). A more conservative ah long can consider the Singapore Savings Bonds (SSB) where your capital is guaranteed. Not forgetting our CPF SA which gives 4-5% interest + tax savings - CPF RSTU - Is It Worth It? Alternatively, you can also become a "property owner" (1mm x 1mm or is that still too much) through Lion-Philip S-REIT ETF - New Singapore Budget, New REIT Strategy! with dividend yield > 5%.
CZM and I will take that $2 and go buy the $8 million ToTo draw instead. Hahahahaha.
Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)
4. Instagram - KPO_and_CZM (Did you see those delicious food photos to the right -->)
This type of bond meant to hold till maturity or called, not for trading. Liquidity will be quite low. E.g. Astrea III class A-1 3.90% bond now bid yield 3.61% and offer yield 3.18%
ReplyDeleteYeah I agree, if one isn't prepared to hold till maturity, better stay away.
DeleteLike I said, it depends on individual's risk appetite/profile. I guess CZM and I are still "young" and we prefer to take on more risks :)
Hi,
ReplyDeleteAfter seeing so many bonds default, Singaporeans never learn! Better be safe than sorry!
Hi Ronnie,
DeleteHahaha. In my opinion, the chances of this bond defaulting is really really low. If one has spare cash and can hold till maturity, it is still a pretty decent investment.
Averaged up into C2PU yesterday. May the KPOUN be with us!
ReplyDeleteHahaha. We bought Capitaland today. Not looking at C2PU (Parkway Life REIT) at the moment. Singtel, APAC Realty and OUE looks more attractive...
DeleteIt seems that the KPOUN effect is really powerful. lol.