My First Ever Bond Purchase

Ok yes, ok.

Dear Singapore government, I apologise for this impudent title. Afterall, ALL of us started buying bonds after we started working.

Don’t quite catch me?

Well, your CPF contributions from employment are channelled to your own Special and Medisave Account and CPF Board then uses these monies to purchase Special Singapore Government Securities. So yeah, the 4% interest that you earn from those accounts come from the yields of these bonds.

So everyone should be quite familiar with bonds, uh huh?  😉

That aside, there’s no doubt that the Frasers Centrepoint Limited (3.65% Per Annum) Bond is the first time I chose to actively include bonds in my own portfolio. More details below:

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What Have I Bought?

Firstly, some basics for those who are close to clueless.

The Frasers Centrepoint Limited (3.65% Per Annum) Bond is a seven year retail bond. Frasers Centrepoint Limited (FCL) will redeem it at par value (price you purchased it at) at the end of seven years. And well, it’s tradeable on the market during this time period.

The bonds pay out coupons twice a year, on 22nd May and 22nd Nov each year, from 22nd Nov 2015 (first payment) to 22nd May 2022 (last interest payment). 22nd May 2022 is also the maturity date of the bond.

Therefore, if you had bought $10,000 of this bond, you can expect a coupon of $182.50 on 22nd Nov 2015 and 22nd May 2016 to add up to the 3.65%. Effectively, it’s a dollar a day.

FCL can also choose to redeem the bonds earlier. What’s the impact? Over here. Fellow blogger LP has done a terrific job on this on his site: Bully The Bear and there’s little I can add. He’s really the go-to-guy on our local blogosphere if you’re keen to brush up on your bonds knowledge.

On his advice, I balloted for 21 lots. And since I expected an overwhelming response, I only anticipated a partial allocation, like about 50%.

But well, I received the full allocation. And I ain’t complaining. So that’s $21K of our assets in this bond.

My Lowdown On Bonds

It’s all about diversification within bonds.

If you have $1 million of assets and hold 50% of it in bonds, you really shouldn’t be holding $500K in just one type of bonds, unless it’s the Singapore Saving Bonds.

And the only reason why I participated in this bond offering was that it is likely to yield at least a 1% premium compared to the Singapore Saving Bonds (SSBs).

FCL is backed by Thai billionaire Charoen Sirivadhanabhakdi (try pronouncing that) after his successful takeover of formerly local conglomerate F & N. And honestly speaking, there’s really only a small chance of FCL collapsing in the next 7 years.

But still, I wouldn’t want to risk more than 10% of my assets in this company and within my bond allocation, I would probably mix it up with the SSBs and if one of the local banks restart their bond offerings, yours truly would be taking a closer look.

A 3% yield for bonds overall is a reasonable target that I am aiming for.

Why Bonds Now?

A year and a half ago, I wrote an article about why most Singaporeans don’t hold government bonds. And at that point, I didn’t hold any bonds too. So why now?

Then, our portfolio was smaller. Couple with the fact that we were both working pretty well-paid jobs, we wanted to be aggressive in our investments.

Motto: More money in markets, more growth. Hohoho… 

Fast forward 1.5 years and some things have changed. We are taking turns taking sabbaticals, yours truly has taken a pay cut to do something that is much less monotonous. Money is still being continually socked away but at a much slower pace in the past year than previously. Therefore, it’s reasonable to become more conservative and allocate a decent proportion of our assets to bonds.

Furthermore, I am becoming more and more open towards indexing a bigger part of my portfolio. A 70/30 stock and bond allocation sounds about right with some rules set that triggers some form of re-balancing.

Even though I am doing a half-decent job with my own stock picking, I am starting to believe that I might prefer to use this time to pursue other interests. Well, that deserves a post by itself and more time needed to ponder over this investment philosophy change.

That’s all folks. If you missed the balloting, there’s every chance of purchasing when the bonds start trading on Monday, 25 May.  

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13 thoughts on “My First Ever Bond Purchase

  1. komatineni

    good info. IMHO, I will hold for a wihle for bonds. Especially with the interest rates raising.

    1. My 15 HWW Post author

      Hi komatineni,

      Interesting that you think this way. With interest rates rising, one should wait before buying bonds?

  2. sgpropertyinc

    im a bit surprise why bonds at this point in time?

    isn’t there an inverse relationship between bond price and interest rates?

    meaning interest rates go up, bond price go down. as your bond become less attractive, compared to the newer bonds with higher interest rates?

    pls enlighten me.

    1. My 15 HWW Post author

      Hi sgpropertyinc,

      You are right about the inverse relationship.

      However, even though interest rates are expected to go up, it’s hard to say how much it will go up by. Furthermore, such saying and thinking has persisted for close to a decade while rates have remained quite low.

      Moreover, I feel that at 3.65%, it’s a decent yield for this retail bond and an increase in interest rates might have already been priced in.

      Instead of timing/predicting interest rates, I would prefer an asset allocation approach and if interest rates do rise, I am open to purchasing more tranches of bonds.

    1. My 15 HWW Post author

      Hi jk,

      I guess not all corporate bonds are created equal. I do deem Genting’s bond as much more risky. Furthermore, I am already a shareholder of that company and more often than not, one needs to choose between a bond holder or being a shareholder of that same company. It’s rarely wise to be in both positions at the same time.

    1. My 15 HWW Post author

      Hi Kryew,

      One can buy local corporate bonds on the SGX. For example, the first bond I bought, as stated in the article is listed as “FCLTrea 3.65%b220522” on SGX. In fact, it’s trading below par value at around 0.98 at this moment.

      1. gnooliew

        so the yield now is actually more than 3.65%. Wonder why it is trading below par given the backing.. the other one below par is Aspial, which is definitely higher risk. Capmall is still at a premium above par and I would think a Frasers issued one would be equivalent.

        1. My 15 HWW Post author

          Hi, gnooliew,

          I think it has to do with how markets are behaving. In Feb this year, it was quite below par. And since the market is trending down, people might be seeing better opportunities in some stocks/equities. I guess that’s the best explanation.

  3. Doris Tan

    I would like to know the procedure to purchase the 7 year retail bond at 3.65% per annum.

    Please contact me at 9451662.

    Thank you.

    Regards
    Doris Tan

    1. My 15 HWW Post author

      Hi Doris,

      You can buy it on the SGX platform through a broker. You would need to open a CDP account first if you have not done so. The broker would also help you with the CDP account if you need it.