atans1

Even rich face non-transparency when buying bonds

In CPF, Financial competency on 22/05/2014 at 4:18 am

(Yes, I’m taking a break from posting on FT-related topics. Normal FT ranting will resume tomorrow.)

ST recently pontificated on the need to make it easier for the “little people” to buy bonds (where in theory only $250,000 is needed for a minimum trade, though the usual dealing size is millions of $). Shortly thereafter, this letter appeared in Forum (BTW, I worked with him when we were both in the central bank. Glad to see that that he is still filthy rich. He went into stockbroking and ran into a rough patch here during the mid 1980s, but recouped his fortune in Perth, I was told).

But before I reproduce the letter, those anti-PAP paper activists who hate the CPF scheme (I’m thinking of you Half Heart Truths) should tell the truth on  CPF returns vis–a-vis govt bonds.  My Facebook Avatar posted this on Siow Kum Hong’s Facebook page (He had praised the 4% but not the 2.5% interest rate)

Don’t be greedy. 10 yr govt paper is less than 2.4%, while 15 yr is 2.7%. Of course investing in Reits a lot higher 5%+. But gd chance of having to retyrn it all via rights issue when there is a recession.

There was once a time when CPF acct holders were screwed (about the time Half Truths was saying rates were 7%). But now it’s a different story. GE coming )))

Now back to the problems very rich face when trying to buy S$ bonds:

Opaque fee structure for secondary bond market
Published on May 13, 2014

I recently bought a sizeable amount of Olam bonds and perpetual notes.

I discovered that bonds in Singapore and abroad are traded over the counter and was shocked by what I learnt about pricing in the secondary market.

While the direction of Olam bond prices was in line with my expectations, the quotations of bid and offer prices were extremely wide. Different banks and stockbroking houses also quoted different bid-offer spreads ranging from 0.75 per cent to 1.25 per cent over a 10-minute period.

Also, these institutions had opaque fee structures. Some banks incorporate their fees in the bid and offer prices, while others charge an additional fee of 0.25 per cent to 3 per cent over and above the spread.

Dealers told me of wealth management and advisory firms charging unsuspecting retail clients up to 3 per cent transaction fees on bonds.

Over one morning, I was given differing quotes from the various departments of a principal bank.

Comparing quotes between major investment banks is another nightmare.

If the Singapore Exchange and investment service practitioners wish to further develop the bond markets here and in Asia, they must come up with a more transparent system of secondary market pricing for retail investors.

The current structure lacks transparent guidelines and uniform fee structures.

Chua Wee Meng (Dr)

– See more at: http://www.straitstimes.com/archive/tuesday/premium/forum-letters/story/opaque-fee-structure-secondary-bond-market-20140513#sthash.ihCRqFWc.dpuf

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