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My wife has an OCBC 360 accounts as well, but this doesn't change our decision to keep holding the CMT 3.08%. Reason very simple, CMT guarantees 7 years, OCBC did not guarantees a period and yet with many conditions. With mortgage interest rate lower than 3.05, how long do you think this product/offer would last? Next, I also have a OCBC Bonus Plus account which gave 0.9% effective interest a year, it was now 0.69% just one month after I opened that account. If there is a 6-month FD that gives more than 3% yield, I would then consider to sell my CMT
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20-04-2014, 09:15 AM
(This post was last modified: 20-04-2014, 09:20 AM by pianist.)
rather, I would think that with interest rate set to rise, it may take convincing conviction to hold onto this bond plus I believe more waves of such savings deposit product with higher rate is set to come. huat ah.
if by the time that 6mth fd is giving 3%, I can bet this bond price will tank below par, so u may be selling at a loss.
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20-04-2014, 09:22 AM
(This post was last modified: 20-04-2014, 09:25 AM by corydorus.)
Not sure i got it right. Seems doing quite an amount of work and financial constrains and for the first 50K only.
http://www.ocbc.com/personal-banking/Acc...360account
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We can not be sure in 3,6,9 or 12 months time, Janet Yellen will do something. Isn't the selling price of this 3.08% bond is creeping up now? i think by August if Janet still laze around with interest rate, you should sell and make some handsome profit or better still after taking the coupon of 1.54%, then sell. In today bank's FD rates, it is not too bad a return for a 6-month-job of risk taking. (aka $100,000 nets $1540. Not worth it?)
And that is only if you think you could deploy this capital with better return at the same or lower risk after August. Maybe you have even now.
WB:-
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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Actually what's so bad to hold throughout the 7 years till recall. Is not perpetual bond.
7 years very fast gone if you treat it as semi liquid funding. Eg. Backup fund for property loan payment for mid term use.
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(20-04-2014, 01:20 PM)corydorus Wrote: Actually what's so bad to hold throughout the 7 years till recall. Is not perpetual bond.
7 years very fast gone if you treat it as semi liquid funding. Eg. Backup fund for property loan payment for mid term use. Ya lol! Only one consideration matters---That is as long as you are not force to sell, you should make some money form this BOND.
WB:-
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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(20-04-2014, 08:11 PM)Temperament Wrote: (20-04-2014, 01:20 PM)corydorus Wrote: Actually what's so bad to hold throughout the 7 years till recall. Is not perpetual bond.
7 years very fast gone if you treat it as semi liquid funding. Eg. Backup fund for property loan payment for mid term use. Ya lol! Only one consideration matters---That is as long as you are not force to sell, you should make some money form this BOND.
I am not sure if an investor will definitely make money from this bond. The interest rate environment in 7 years is not easily predicted. If inflation increase and i/r rises higher than 3%, the possibility of selling at a loss is high. Hence, I do not quite agree with the statement that an investor will make money from this bond.
In order to explain the recent rise in the price of the bond, we will need to go back to the near term outlook of interest rates. The fed has through its forward guidance, kept expectation and actual fed funds rate low. This is dovish move by the federal reserve. Hence, this explains the rise in prices of bonds during the recent weeks.
But I think the thread did not use an accurate benchmark to value the CMT bond. The actual risk free instruments should be a 7 year SGS or to a less accurate extent, 7 year US treasury bond. Lets assume that we use the 7 year SGS which is ~2%. Is the exposure to company and interest rate risk worth an additional 1.08% (3.08% - 2%)? This is the more important question to ask.
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CMT is very unlikely to go bust. So many malls under its belt supporting our daily life. Singapore would probably in a war or maybe 30% of the population gone to impact it.
Even if we are wrong in relative i/r sense, we still get our capital and annual dividends back at maturity. Is not a bad situation to fall into either. Btw i am not saying we put all our eggs here.
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Put it in this way, POSB mortgage loan capped rate at 2.5% per year for next 8 years, if one do have excess fund for loan repayment, would it not make sense to make use of the fund to invest in this bond which gives 3.08% and then a lump sum payment after 7 years?
Well I believe the bank are not stupid, if they can guarantee 2.5% mortgage interest for next 8 years, does it not mean that they don't foresee rate to go up rapidly for the next couple of years?
Having said this, no one could accurately predict things in future, but based on the fact and information available now, I don't think the bond would go below par.
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(20-04-2014, 10:02 PM)csl123 Wrote: (20-04-2014, 08:11 PM)Temperament Wrote: (20-04-2014, 01:20 PM)corydorus Wrote: Actually what's so bad to hold throughout the 7 years till recall. Is not perpetual bond.
7 years very fast gone if you treat it as semi liquid funding. Eg. Backup fund for property loan payment for mid term use. Ya lol! Only one consideration matters---That is as long as you are not force to sell, you should make some money form this BOND.
I am not sure if an investor will definitely make money from this bond. The interest rate environment in 7 years is not easily predicted. If inflation increase and i/r rises higher than 3%, the possibility of selling at a loss is high. Hence, I do not quite agree with the statement that an investor will make money from this bond.
In order to explain the recent rise in the price of the bond, we will need to go back to the near term outlook of interest rates. The fed has through its forward guidance, kept expectation and actual fed funds rate low. This is dovish move by the federal reserve. Hence, this explains the rise in prices of bonds during the recent weeks.
But I think the thread did not use an accurate benchmark to value the CMT bond. The actual risk free instruments should be a 7 year SGS or to a less accurate extent, 7 year US treasury bond. Lets assume that we use the 7 year SGS which is ~2%. Is the exposure to company and interest rate risk worth an additional 1.08% (3.08% - 2%)? This is the more important question to ask.
How can invest in 7yrs SGS gives you zero interest rate exposure? I think the extra 1.08% is to compensate only against the risk of default from CMT.
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