Loan stocks (NCPS) issued by banks

Dear Mr Tan,

My friend says he gets good interest return on the following loan stocks. i.e. DBS BK NCPS 100, OCBC BK 4.2% NCPS and OCBC BK 4.5% NCPS 100. Interest payable are gross 6%, 5.25% and 5.625% respectively.

I plan to invest in these loan stock. Will this be a wise investment?

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REPLY:

The price for these loan stocks are now above par. If you invest in it, you will get a yield that is lower than the coupon rate. You can ask the broker for the current price and the yield. You can then decide, if the return is satisfactory.

Generally, the NCPS (non-convertable preference shares) issued by these banks are quite safe. I had invested in them as well. I bought them at par, so I was able to earn a good yield.

In my case, I decide to put my money now in the money market fund. You can read about it in my FAQ.

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Here are the current yield, based on the current price as quoted on the SGX as at 11 May:

DBS BK 6% NCPS 10 108.80/109.40 (yield -3.6%)
OCBC BK 4.2% NCPS 1.03/1.04 (yield - 3.9%)
OCBC BK 4.5% NCPS 100 104.00/104.20 (yield 3.29%)

The yield vary from 3.3% to 3.9% p.a. depending on the duration to the maturity date.