Market conditions seem ripe for fixed-for-life perpetuals

THE warm reception to recent bond issues with low-ish coupons shows that investors seem resigned to rangebound interest rates for quite a long time.

Last week, a Singapore Airlines S$700 million 10-year bond at 3.13 per cent took in over S$1.1 billion in orders. There was also a S$160 million NC-3 perpetual for Wing Tai Properties at 4.35 per cent with an orderbook of S$750 million. While the NC-3 lets the issuer call or redeem the bonds from year 3, the coupon is only reset at 10 years.

This means that if interest rates rise by the first call date, the issuer does not have to redeem the bonds since the reset is still some seven years away. If interest rates fall significantly, the issuer will be encouraged to redeem the bonds and refinance at a lower rate.