Tuesday, January 20, 2015

This article appeared in The Edge on Nov 17th, 2014

Negative yield in bonds
In September this year, Khazanah Nasional Berhad issued a USD500 million exchangeable sukuk, the third of its kind within the last two years. What is interesting about these sukuks are that they were zero coupon sukuks with negative yields.  
Negative yield in bonds are not common in the market, but it may become more frequent. In this article I define negative yield and show how it is computed. The motivation of investors to invest in such bonds is explored. Finally the article discusses the mechanics of convertible and exchangeable bonds.
Understanding negative yield to maturity
When an investor buys a coupon-paying bond, he is promised a series of regular coupons and the
This article appeared in The Edge on June 16th 2014
Will you be paying more for your coffee soon? The answer lies in hedging tactics

In our everyday lives of coping with financial markets and home life, we need our coffees to keep us going. But brewing in the corner is a steady, dramatic rise in coffee prices since the start of the year. Chart 1 shows prices of the DEC 2014 Arabica coffee futures listed in the ICE Futures in the U.S. Since January, the prices have increased by over 50% !

Chart 1
Source: ICE, USA

A futures price reflects thousands of market players’ (hedgers and speculators who buy and sell the contracts) reactions towards the expectation of the spot coffee prices in the future.  Taking the example of the KCZ12 futures contract above, the expectation is that the price of coffee by end-December will be 177.95 cents per pound. In comparison, the spot or physical price is gathered by agents from numerous localized auction markets in coffee producing countries. Futures tend to be a