Singapore: An Asian bond hedge fund set up by former Korea Investment Corp CIO Guan Ong has turned cautious following a prolonged rally in bond prices, switching from high-yield bonds to higher-quality paper amid an uncertain economic outlook.
"A lot of external funds, those based outside of Asia, have come in to buy and my concerns are things have become a bit expensive," Ong, principal of Singapore-based Blue Rice Investment Management, told Reuters in an interview on Friday.
"We are moving back to high-grade," he said, noting that bond yields have fallen globally and spreads between higher and lesser-rated securities have narrowed considerably.
He cited as an example the spread between dollar-denominated Philippine and South Korean government bonds, which has fallen to just 20-30 basis points (BPS) even though the Philippines has a below-investment grade rating.
These bonds once offered spreads of 2-3 percentage points.
Defensive stance
Ong said Blue Rice's 9-month-old BRIM Asian Credit Fund, which invests primarily in dollar-denominated Asian bonds, currently has a defensive stance given the gains in bond prices since the start of the year and the uncertain global economy.
The fund, which has just under $30 million (Dh110 million), currently holds higher-rated Asian sovereigns as well as tier-one perpetual debt issued by banks located in Australia, Japan, Malaysia and Hong Kong.
The fund also owns a small amount of bonds issued by energy firms in the Middle East but may exit the investments "as spreads are getting quite compressed".
Ong, who is Malaysian, left Korea Investment Corp last year after three years with sovereign fund.
