Rising yields and shifting strategies: Navigating September’s T-bond market

A GOOD investor must consider not only financial objectives but also the strategy to attain them.

With reference to how the secondary fixed income market has behaved from the beginning of September to the week ending on the 20th, it is apparent that long-term bonds are garnering higher attention and turnover compared to shorter-term instruments.

This trend can be attributed to the fluctuating yields and market conditions, as both old and new coupon rates significantly influenced investor sentiment.

During the first week of September 2024, investor preferences leaned heavily toward long-term bonds, particularly the 25-year bond with a 15.95 per cent coupon rate, which saw the highest turnover at 4.33bn/-, an average yield of 15.83 per cent, and a price of 105 per cent.

This reflects a robust demand for higher-yield, longer-term instruments.

The performance of this bond outshined others, such as the new 25-year bond with a 12.56 per cent coupon rate, which posted a lower yield of 13.16 per cent and a modest turnover of 2.35bn/-.

he older bond’s superior yield clearly outweighed the appeal of the newly issued bond, underscoring how investors continue to seek out stability and higher returns in a rising interest rate environment.

Mid-term securities such as the new 15-year bond struggled to gain traction.

Offering a 11.15 per cent coupon rate, it had a yield of 15.54 per cent but only registered 0.01bn/- in turnover.

This reflects the cautious sentiment investors held for bonds in the mid-range, especially as long-term securities offered higher returns with perceived stability.

Moving to the week ending on September 13th, there was a notable shift in investor focus.

The old 25-year bond dominated the market, with turnover surging to 64.53bn/-, despite a slight decrease in yield to 15.40 per cent and a price increase to 106 per cent.

This reaffirmed the bond’s position as the go-to for long-term investments, with the higher price reflecting increased demand and lower supply as investors held onto this lucrative instrument.

By contrast, the new 25-year bond saw a significant drop in turnover, down to 0.09bn/-, despite an improved yield of 14.06 per cent at a lower price of 92 per cent.

This divergence in performance between old and new issues highlights how investor confidence has been swayed by coupon rates and historical stability.

Other notable performers in the same week include the old 15-year bond, which registered 19.29bn/- in turnover, bolstered by a price rise to 105 per cent and a yield of 13.51 per cent.

Similarly, the old 20-year bond continued to attract high turnover at 15.96bn/-, with a consistent yield of 15.09 per cent and a price of 104 per cent.

These bonds further demonstrate that the market favors long-term instruments with stable, higher coupon rates.

By the third week, ending on September 20th, long-term bonds, particularly the old 25-year bond, still commanded attention, although turnover dipped slightly to 24.52bn/-.

Despite this, the bond maintained its appeal with a yield of 15.36 per cent and a price of 106 per cent.

Meanwhile, the new 25-year bond saw a modest recovery in turnover to 0.15bn/-, as its yield improved to 13.96 per cent, signaling a gradual shift in investor sentiment as the market adjusted to the new issuance.

Interestingly, the new 20-year bond also gained traction with turnover climbing to 0.10bn/-, a yield of 12.35 per cent, and a price of 100 per cent.

This balanced performance suggests that investors are starting to warm up to new issuances, particularly as the yields and prices stabilise.

The old 20-year bond, however, continued to perform strongly with 17.86bn/- in turnover and a yield of 15.21 per cent, affirming the ongoing dominance of longer term instruments.

Shorter-term bonds like the old 10-year bond experienced a decrease in price to 90 per cent, with a yield of 15.21 per cent, and minimal turnover of 0.01bn/-.

This reflects a cautious approach by investors towards shorter maturities, which offer lower yields relative to longer-term options, especially in a market where interest rates are rising.

As demonstrated therefore, the secondary market data for September 2024 highlights a clear preference for older Treasury bonds with higher coupon rates, particularly in the 25- and 20-year categories.

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Investors continue to gravitate towards these longer-term instruments, driven by the higher and more stable yields they offer.

Meanwhile, newly issued bonds, though initially met with lukewarm demand, are gradually finding their place in the market as their yields stabilise and prices adjust.

Investors remain cautious but pragmatic, prioritising long term stability and returns as they navigate the complexities of the current T-bond market.