Wednesday, 15 March 2017

What's your thoughts on this bond's yield?

I used to own 34,000 units of CMA3.8% bonds, until they were redeemed it in January this year. This bond has a coupon of 3.8% for the first 5 years, and 4.5% after that. They have an option to redeem the bonds from Jan 2017 onwards, and they did. It seems reasonable since if they weren't redeemed, the interest to be paid out would be 4.5%, which is not justifiable since they are able to get loans with lower interest rate.

With this redemption, I am looking at other avenues to maintain or even better my interest income.

One of the bond that I was looking at is the retail perpetual bond issued by Genting at a coupon of 5.125% per year. If this bond is not redeemed in 2022 (10 years after being issued), the coupon goes to 6.125%. But there's a catch.

This security may be redeemed in whole on the first call date or any distribution payment date thereafter. The first call date for the retail bond is October 2017.

This is a nice article by fundsupermart on their opinion why they think this perpetual bond will be redeemed by the first call date.

The last done price for this perpetual bond was $1.040 or 4% above par. At this time of writing, there is still 2 more coupons till the first call date. The cheapest brokerage cost is 0.18%. Using simple maths, if the bond is redeemed in October this year, the simple interest received is 5.125 - 4% - 0.18% = 0.945% for holding the bond for 7 months or 1.62% if you annualized it. This of course is if we assume that the bonds were to redeemed at the first call date.

For now, I am going to top up my UOB One account with this extra, and set up 3 GIROs to it.

Disclaimer: I am not a financially savvy person, so what I'm going to write 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 exercise your own judgement on whether you agree with what I have written. I won't be held liable for any inaccuracies or omissions. In addition, all ideas expressed here should not be thought of as an enticement to buy or sell any products, securities, assets, commodities or whatsoever mentioned. Kindly see my disclaimer at the end of the blog for more detail. 

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