Saturday, 23 January 2016

CapitaMall Asia 3.8% 220112 Bond

I used to think that shares and bond prices should have an inverse relationship. However, it seems that it's not true for now. With share prices are dropping (with the STI dropping below 2600 points today), I see that 2 of the 3 retail bonds I hold are now trading below par.

I hold CMA 3.8%, FCL 3.65% and CMT 3.08% bonds. CMA is trading at one of the lowest price now since it was listed, and both CMT 3.08% and FCL 3.65% bonds are trading below par. Well, I am wondering is it due to poor market sentiments (like the shares in general), or is it due to an expected rise in interest rate (hence making current bond yield less attractive), or it could be since the market is down now, people are trading the bonds for higher yield items, such as stocks!

With these 3 bonds' prices going down, as long as the companies can still pay me the interests, and pay me back what I put in at maturity, I have no qualms about their trading price, since I intend to hold them to maturity. 

I am interested in getting CMA 3.8%. Note that this bond is still trading above par at $1.003 at this point of writing. This bond could be redeemed starting next year (at the discretion of the company), and at subsequent coupon payment date  (January and July). If the bond is not redeemed in January 2017, the interest paid per year would be 4.5%. 

I am using POEMS as my online trading platform. As such, if I were to purchase 10,000 units of CMA 3.8% bond at $1.003 per unit, it means that I will need to pay $10,064.34. To make calculation easier, I assume that this bond will be redeemed in January 2017 (thus I will receive 2 interest payment or 3.8% of 10,000 units).

I used the following method to estimate the IRR for this investment:



Thus, if this bond were to be redeemed next year in January, I would have earned about 3.1% for a one year bond. If this bond were not redeemed in January next year, I would be receiving 4.5% interest, making the effective yield closer to 4.5%.

I find it a relatively good buy. As such, I have added 10,000 units of CapitaMallAsia 3.8% 220112 Bond to my assets.


Disclaimer: I am not a financially savvy person, so what I is written is based on what I deduce from my limited research and reading. This may not be an accurate account of the real scenario, and you are to do your own judgement on whether such funds are good or not for yourself. I won't be held liable for any inaccuracies or omissions (see also my disclaimer at the end of the blog).

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