02 September 2014

Retail Bonds for Retirement Income (My Name is Bond)

I had previously griped about the lack of access for retail investors to invest into bonds in 5 Wishes for X'mas 2014.

"Why can't those 5%, 6%, 7% coupon paying bonds be made available to retail investors? At $250,000 a pop, they're completely out of reach for most. Why the exclusivity when bonds could really lower the risk profile of an investor's portfolio? Imagine all those education and retirement portfolios aiming to get a reasonably safe yield or 4% extraction for retirement?"

Well, the good news is that the Consultation Paper on Facilitating Bond Offerings to Retail Investors (MAS) is out! Looks like there is a good possibility that retail investors would in due course be able to invest in bonds at smaller lot sizes.

Yet another of my early X'mas wish list being realised.

Unfortunately, if the smaller lot size for bonds is only offered through retailing in the secondary market, retail investors may not gain the full benefit of the bond coupon rates as it could very well normalise back to the risk-free level of the prevailing risk-free market rates of SGS bonds, padded with a difference based on the risk profile of the underlying company?

It is after all a consultation paper and the final form could still evolve. In any case, it is an interesting development.

Wouldn't it be great to be able to take $100,000 (excess above minimum sum from CPF at age 55) and invest in a range of bonds at $10,000 per series, giving >4% coupons (i.e. >$4,000 per annum or >$330 per month)? That's a personal bond unit trust!

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