Wednesday, April 20, 2016

New perennial 4.55% 4 yrs bond - Goodbye or good buy?

Looks like yet another bond offering in the local retail bond market. It's always the same few players offering bonds, and this time it's by Perennial Real Estate Holding (PREH). They just offered a 3 yrs 4.65% bond in Oct 2015 that I blogged about it here and now they are back at it again.

This time round, it's a 4 yrs 4.55% bond. Let's see how it compares with the currently traded 3yr4.65% bond.

Last close price of 3yr4.65% bond: $1.012
Par value of bond : $1.000
Capital loss from buying above par: $0.012

Total no of coupon payments left: 5
Payout for each coupon payment: $0.02325
Total returns upon maturity: 0.02325x5 - 0.012 = $0.10425
Total % returns: 10.301%

Maturity date of bond: 23rd Oct 2018
Today's date: 20th Apr 2016
Total holding period: 916 days or 2.51 yrs
Average returns: 4.10% pa
Yield to maturity: 4.22% pa

Here's the chart of how it performed since listing.

Screenshot from Investingnote

The gap down around mid April 2016 is due to the XD for its first coupon payment to be paid out at the end of April this year. It didn't go below its par value at all since listing, even during the severe drop around the start of the this year for STI. The newly listed Aspial 5.3% bond didn't share the same fate - it's now currently traded below par. Even the older Aspial 5.25% bond is trading below par too.

Good bye or good buy? I wouldn't buy it. 4 yrs seem to be a little long given the potential increase in interest rate in the near future. In 4 yrs time, it's bound to be a certainty, just a matter of how much it'll increase, so for those who are buying, be prepared to hold till maturity. Your capital might not be preserved if you need to cash it out for stocks purchase, for example.

I guess you have to ask yourself whether there are better alternatives out there - like those stocks with bond like qualities haha


K said...


What the difference between average yield and YTM? How do you calculate YTM?


la papillion said...

Hi K,

Average yield is my own way of calculating returns. Basically it's just take the total returns (capital gain/loss from buying above/below par + Sum of all coupons received till maturity) then divided by the duration of the period held, expressed as a % of the buy price.

YTM (yield to maturity) is calculated using one of those free online bond calculators. Just type in ytm bond calculator and you have plenty to choose from.

SMK said...

bonds time will come. NOT now though.

people will say, remember when they said equities will outperform bonds? how quaint

joel said...

Hi LP,

Thanks for the post. May I know what is the discount rate you used from the YTM calculation?

la papillion said...

Hi smk,

I'm of the same view as you too. Equities should shine.

la papillion said...

Hi Joel,

I didn't work out the ytm myself. I used an online calculator. I'm very sure they don't require me to enter a discount rate. It's just 4 inputs - price now, par, coupon rate and date of maturity.

Anonymous said...

Don't discount it yet. At the yield of 4 ish, it is stil a better option than Investing in stocks.
Just ipo and diversify . Just set a sided some more bullets as there are bound to be more retail bonds.

For those who want a safer retail bond u can look at capital mall and Fraser

la papillion said...

Hi anonymous,

Agree. Not discounting it, but just pointing out the risk of the statement 'bonds are safer than equities'. I think there are some stocks that are safer than bonds too haha!

But capmall and fct is the safer options, I agree.

Anonymous said...

Perennial Real Estate Holdings Retail Bonds 2nd tranche 4 yrs at 4.55% pa