Wednesday, 19 June 2019

Astrea V 3.85% Structured bonds

Astrea V structured financed securities were offered to the public. My family member and I applied for some. Unlike Astrea IV, there would be balloting if you applied for amounts above $50k (and in return you stood to get a higher allocation if successful rather than the tiny amount Astrea IV allocated). 

I got 18,000 while my family member got none. I would therefore say that my strategy of two applications to maximise chance of allocation was successful (if you do the maths of expected returns based on the Astrea V allocation table, two applications are better than one because the quantity allocated/quantity applied ratio is a decreasing one).

I wrote about Astrea IV here. This is a structured finance product, rated Asf  by Fitch and A+ by S&P. Astrea IV was oversubscribed by 7.4x despite the negativity by the anonymous internet brigade, and a similar situation occured with Astrea V. 

For Astrea IV, I looked at the yield of BBB+ investment grade SGD bonds of similar tenor and noted that their yields were much lower than the Astrea IV's 4.35%, suggesting that the price of Astrea IV would go up and the yield would go down to where other investment grade products were situation. Turned out to be correct. 

Astrea V at 3.85% is lower than Astrea IV's initial yield, but its still higher than Astrea IV's current yield to maturity, and it's not rocket science that Astrea V's price will go up at least in the short term.

Some keyboard warriors also cast doubt on ratings agencies' ratings of structured finance products. Here is S&P's writeup on their structured finance ratings:

Structured finance: 'sf' identifier
111. The 'sf' identifier shall be assigned to ratings on "structured finance instruments" when required to comply with an applicable law or regulatory requirement or when S&P Global Ratings believes it appropriate. The addition of the 'sf' identifier to a rating does not change that rating's definition or our opinion about the issue's creditworthiness. For detailed information on the instruments assigned the 'sf' identifier, please see the appendix for the types of instruments that carry the 'sf' identifier.

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