Strong demand for Temasek retail bond on trading debut

It hits intraday high of 102.8 cents before closing at 102.2 cents

Temasek's first retail bond joined the mainboard yesterday.

The bond opened at 102.5 cents to the dollar and hit a high of 102.8 cents before closing at 102.2 cents.

The T2023-S$ Temasek Bond pays 2.7 per cent a year and matures in October 2023.

It trades in board lots of $1,000 in principal amount of the bonds.

Mr Richmond Zhan, head of fixed income at Phillip Securities, noted that the buy queue was strong with a large number of orders queued at 102 cents.

"Demand could come from investors topping up their allocation and also this being the first and only Temasek bond available for retail investors."

However, Mr Zhan said he was surprised when the bond opened above 102 cents, adding: "I believe retail investors priced the bond too high.

"The yield (for the Temasek retail bond) should not trade below those of Singapore Government Securities (SGS) or HDB."

Bond yields fall when prices rise.

In theory, bonds issued by corporates are expected to trade at a higher yield than government bonds. This is because of the risk premium that investors should demand for holding riskier corporate debt.

Government debt is considered the safest debt to hold and this comes with a lower yield.

Temasek has a corporate credit rating of Aaa by Moody's and AAA by S&P. It has noted that it is classified as a corporate issuer, not a government one.

The HDB or Housing Board, on the other hand, is considered quasi-government, while SGS is issued by the Singapore Government.

A total of $300 million worth of Temasek bonds were offered under the retail tranche, and all applicants who applied for bonds worth $6,000 and below received full allocations.

Temasek received valid applications amounting to $1.68 billion for the retail tranche, representing a subscription rate of about five times the final public offer size of $300 million, or just over eight times the initial offer size of $200 million.

The prices of retail bonds listed on the Singapore Exchange reflect their "dirty price", which includes accrued interest.

Accrued interest has to be deducted from the "dirty price" to reflect the "clean price", which is also the indicative ask price.

A version of this article appeared in the print edition of The Straits Times on October 27, 2018, with the headline 'Strong demand for Temasek retail bond on trading debut'. Print Edition | Subscribe