Questions from Newbie to investing

[pianist]

https://secure.sgs.gov.sg/fdanet/SgsBenc...rices.aspx

30 year SGS bonds are now trading at about 3.5% yield to maturity
you should speak more to your stock broker, he can help you purchase it since its traded on the exchange, min is 10 shares per lot
for example 10 shares of 30 years bonds = about $900

there are also other stuff like CMA 3.8% and genting 5%, which you may wanna read up more about.

just curious - does it make sense to emphasize on yield to maturity for a 30 year SGS bonds. I mean 30 years is so long time, is it sensible to be enticed by a just 3.5 or 4 or 5% yield to maturity?

---

"Non-investment grade" is the polite term for junk bonds. They are called junk for a reason - there is no reasonable level of confidence that the bonds will actually be paid at par, or indeed at all.

Junk bond investing lies firmly in the realm of professionals because it actually takes MORE work to research the junk bonds than the equity of the specific issuer.

In a way, shares are all alike - you are entitled to vote, to receive dividends, to participate in rights issues etc. But every bond is different, and even different bonds from the same issuer are different. Coupon and maturity are the simple bits. Seniority, collateral quality, jurisdiction, enforceability, covenants and willingness to repay (not just ability) all have to be considered.

It is not a simple matter of thinking "a 10% bond trading at 75 is a good value". That is a simpleton's recipe for disaster and heavy capital loss.

Those who bought the bonds recently issued by Eratat, for example, have learnt nothing from the S-chip convertible bond (CB) debacle of a few years ago when Celestial Nutrifoods, China Milk, China Sun Bio-Tech, and Sino-Environment all defaulted on their CBs with zero recovery for bondholders. Why did these bondholders lose 100% of their principal? Because they ignored clear warning signs:

1. Jurisdiction mismatch - the assets (cash) were held in the Chinese subsidiaries, but the liabilities (bonds) were owed by the listed company in Bermuda/Cayman/BVI/Singapore.

2. Collateral - the bonds were unsecured so there was no collateral to seize.

3. Covenants - there were no restrictions on where/how to use the cash or to maintain certain debt servicing ratios.

4. Enforceability - bondholders would have to sue offshore, then get it enforced onshore. Very troublesome process with no guarantee the local courts would recognize foreign judgments.

5. Cost of Default - lack of extradition treaty for commercial crimes meant there was no risk of arrest, let alone fine or jail, for stealing the cash.

So the company executives had hundreds of millions of reasons to steal the money. Lots of upside, no downside. What would any rational (and amoral) person do in such a situation? Shown enough money, many otherwise good people will cross the line, often rationalizing to themselves along the way that these are willing buyer-willing seller deals, the stock market is a casino anyway, it's small change to these big investors, the kids/mistresses/extended family/local officials really need the money, it's revenge against foreign devils for humiliating China in the past etc.

If you have read this far and understood it all, it should be clear that if you are not willing to put in as much work as a professional investor, you should steer clear of junk bonds, lest you end up taking on more risk than you can tolerate. And if you didn't understand what was discussed above, all the more you should stay far, far away from junk bonds.

As usual, YMMV.

thanks for the reply. china aside, how about junk bonds from japan or sat Nordic countries which have more reliable jurisdiction?

now it brought me this question - how can sgx bring in those s-chips in without a proper two-parties extradition treaty to safeguard sg investors interest in event of scandals/fraud?
kept seeing so many sg top-guns in newspapers go china often ink this agreement ink that contract, break the ground, but not even one on extradition treaty to make sure their bad guys are delivered to sg courts for judgement?

[felixleong]

buying SGS bonds is like putting money into your CPF
your CPF funds are invested in long term government bonds

[pianist]

buying SGS bonds is like putting money into your CPF
your CPF funds are invested in long term government bonds

I see...

can we use cpf monies to buy this 30 yrs bond if their YTM is higher than e prevailing 4%?

[CY09]

Yes, you can. Just know that at that stage, your CPF SA/MA will be yielding 10 yr SGS bond rates + 1% as well. So you will have to evaluate which is a better investment for you as an individual: The CPF prevailing rate or 30 year SGS bonds.

[NTL]

Yes, you can. Just know that at that stage, your CPF SA/MA will be yielding 10 yr SGS bond rates + 1% as well. So you will have to evaluate which is a better investment for you as an individual: The CPF prevailing rate or 30 year SGS bonds.

Will this imbalance ever happen?

[Temperament]

https://secure.sgs.gov.sg/fdanet/SgsBenc...rices.aspx

30 year SGS bonds are now trading at about 3.5% yield to maturity
you should speak more to your stock broker, he can help you purchase it since its traded on the exchange, min is 10 shares per lot
for example 10 shares of 30 years bonds = about $900

there are also other stuff like CMA 3.8% and genting 5%, which you may wanna read up more about.

just curious - does it make sense to emphasize on yield to maturity for a 30 year SGS bonds. I mean 30 years is so long time, is it sensible to be enticed by a just 3.5 or 4 or 5% yield to maturity?

---

"Non-investment grade" is the polite term for junk bonds. They are called junk for a reason - there is no reasonable level of confidence that the bonds will actually be paid at par, or indeed at all.

Junk bond investing lies firmly in the realm of professionals because it actually takes MORE work to research the junk bonds than the equity of the specific issuer.

In a way, shares are all alike - you are entitled to vote, to receive dividends, to participate in rights issues etc. But every bond is different, and even different bonds from the same issuer are different. Coupon and maturity are the simple bits. Seniority, collateral quality, jurisdiction, enforceability, covenants and willingness to repay (not just ability) all have to be considered.

It is not a simple matter of thinking "a 10% bond trading at 75 is a good value". That is a simpleton's recipe for disaster and heavy capital loss.

Those who bought the bonds recently issued by Eratat, for example, have learnt nothing from the S-chip convertible bond (CB) debacle of a few years ago when Celestial Nutrifoods, China Milk, China Sun Bio-Tech, and Sino-Environment all defaulted on their CBs with zero recovery for bondholders. Why did these bondholders lose 100% of their principal? Because they ignored clear warning signs:

1. Jurisdiction mismatch - the assets (cash) were held in the Chinese subsidiaries, but the liabilities (bonds) were owed by the listed company in Bermuda/Cayman/BVI/Singapore.

2. Collateral - the bonds were unsecured so there was no collateral to seize.

3. Covenants - there were no restrictions on where/how to use the cash or to maintain certain debt servicing ratios.

4. Enforceability - bondholders would have to sue offshore, then get it enforced onshore. Very troublesome process with no guarantee the local courts would recognize foreign judgments.

5. Cost of Default - lack of extradition treaty for commercial crimes meant there was no risk of arrest, let alone fine or jail, for stealing the cash.

So the company executives had hundreds of millions of reasons to steal the money. Lots of upside, no downside. What would any rational (and amoral) person do in such a situation? Shown enough money, many otherwise good people will cross the line, often rationalizing to themselves along the way that these are willing buyer-willing seller deals, the stock market is a casino anyway, it's small change to these big investors, the kids/mistresses/extended family/local officials really need the money, it's revenge against foreign devils for humiliating China in the past etc.

If you have read this far and understood it all, it should be clear that if you are not willing to put in as much work as a professional investor, you should steer clear of junk bonds, lest you end up taking on more risk than you can tolerate. And if you didn't understand what was discussed above, all the more you should stay far, far away from junk bonds.

As usual, YMMV.

thanks for the reply. china aside, how about junk bonds from japan or sat Nordic countries which have more reliable jurisdiction?

now it brought me this question - how can sgx bring in those s-chips in without a proper two-parties extradition treaty to safeguard sg investors interest in event of scandals/fraud?
kept seeing so many sg top-guns in newspapers go china often ink this agreement ink that contract, break the ground, but not even one on extradition treaty to make sure their bad guys are delivered to sg courts for judgement?

"but not even one on extradition treaty to make sure their bad guys are delivered to sg courts for judgement"?

Ha! Ha!
i think the Indonesian GOV think or says the same about Singapore. Is there a extradition with Indonesia?
The Moral:-
Everyone is looking after their own backsides. No one really cares about ours except ourselves.

Junk Bonds:
From what i understand even specialists on JUNK BONDs , they buy in "bulk". never one or two.

[sgd]

Ever heard of Michael Milken?

Junk bond king of the 80's a bonds trader built an empire on junk bonds until it all came crashing down. I read about him from Den Of Thieves paperback from the 90's.

[Dividend Warrior]

Ever heard of Michael Milken?

Junk bond king of the 80's a bonds trader built an empire on junk bonds until it all came crashing down. I read about him from Den Of Thieves paperback from the 90's.

Well....junk bonds are called 'junk' for a reason.

[felixleong]

if one is wants to play safe, AAA bonds are the way to go
if one wants to take risk, stocks are surely more rewarding than junk bonds ^^

[Temperament]

Be careful, "AAA" of anything can change suddenly or downgraded. Think of the CDO Bonds rating in 2008/2009 fiasco.