The rising interest rate environment is both a risk and opportunity to bond lovers. Regardless of different economic conditions or investing climates, having non-equity investment is almost certainly a must in every investor's portfolio, such as precious metals, commodities, traditional fixed deposits, and bonds.
When it comes to bonds investing, there is, however a very important distinction between Bonds ETF and Bonds: Maturity Date.
A bond ETF, such MBH (Nikko AM SGD Investment Grade Corporate Bond ETF) has no maturity date; which means once a buy-and-hold investor purchases this bond ETF, the investment will perpetually remain in his portfolio, until he decides to sell it away in future (with possibility of selling at a loss). Whereas, for individual bonds, such as retail bond (TEKB - Temasek 2.7% 231025) and SGS bond (Singapore Government Securities), there is a maturity date; so the investor will eventually and automatically receive the par value of the individual bond (unless the bond issuer defaulted), without the need to sell it away in the secondary market.
The assurance & certainty of being able to recover the original par value of bond investment should always remain as a top consideration & priority of bond investors, and this can be greatly achieved by investing in investment grades bonds.
Therefore, a rising rate environment creates new good opportunities for the bond-starved investors, as the new bonds issuance will offer higher interest/coupon, than when interest rates are relatively lower in past few years. Investors can also build a bond ladder, rather than "all-in" lumpsum in a single bond. This systematic building of bond ladder over time can diversify the interest rate risk, and is a good approach to DCA your bond investments in the rising rate environment.
There are 2 upcoming new investment grade bond issuance, that are worth a spot in everyone's defensive portfolio:
1. Astrea VII PE bonds with fixed coupon of 4.125%
- Dateline: 12 noon, 25 May 2022
2. SGS 5-year Reopen bond (rate to be determined on Auction date 27 May 2022)
- Dateline: 9pm, 26 May 2022
Safe haven asset is hard to come by, but an investment grade bond is possibly the next best thing.
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