Re: Interesting Bond issues
Bond Financing: Better than Property Investment + Die faster
After screwing us with minibonds (repackaged financial products), Accumulators (i-kill-u-later options contracts), our brilliant RMs continue to engineer more financial products with maximum leverage to sustain their business volume.
RM don't make much from bond sales. Some risky entities issued some bonds recently, with >7% yields. To increase business volume, they offer 60-70% LTV, RUN's friends bite at the bait.
Capital: $300K, LTV: 70%
Using $300K, investor purchased $1m of 6% bond = $60K per year
Bank Interest: Flexi sibor 1.3-1.4%
Cost of financing 1.4% x 700K = appx $9.8
Return on $300K Capital = $60K - $9.8K = $50K = 16.7%pa
Better than investing in properties right?
Even for less risky issues, like HDB 3%, UOB 3.5%, OCBC 4%, the yields are lower but the RMs offer 80-90% LTV. However, the investors are taking too much underlying risks. This is not the way we should live our life because of Default risk, drop in bond prices (margin call), surge in SIBOR rates.
Bond Financing can make u lose more than your capital. (please see the next reply, as an example using APPLE)
Bond investment should be kept simple.