What happened to my bond portfolio this week after the Oil Price crash and Coronavirus?

Last week was a historical one following biggest OIL price drop since 2008. I wrote a blog post on the impact of Coronavirus and oil price crash to the markets. An oil price drop of 24% impacted by bonds that they rely on oil as the main source of income for their economy like Sultanate of Oman.

As you can see in the chart above Oman Government bond price dropped from $98 to $66. That is almost 30% drop in one week. This has never happened before as there was not a steep change in OIL price in this bonds history.

I had a $400K position in this bond! Imagine my face when I saw -$120K wiped out overnight from my account balance. This is considered as Unrealized Loss as I was able to keep the bond without hitting auto liquidation. IBKR auto liquidates you when your account value NLV is less than your Maintenance Margin.

Check out my post on March 4th for Sultanate of Oman Coupon Payment . Despite this wild run Sultanate of Oman paid me $13K as a coupon payment on March 8th. So as long as I do not have to sell it I would not lose any money.

Think about it like you bought a house and the value of your house went down. As long as coupons are paid then I do not worry just like the rent payments from your house investment. Sultanate of Oman never had a default event. Despite the low oil prices I do not expect Sultanate of Oman to default any time soon. Should this event come close, GCC friends like Saudi or UAE would come to rescue with a loan and do not let Oman fail.

Egypt is another bond in my portfolio with another big price cut last week due to oil dependency.

Egypt’s main source of income is coming from oil and tourism. Tourism makes 20% of Egypt GDP. Read this news article that explains quite well about the latest situation in Egypt. During last week Egypt bond price fell from $100 to $84 which equates to 16% drop in one week. This was the main impact of oil price drop. If we look at monthly price change it came down from $115 to $84 that is 36% crash.

First part of crash was due to Coronavirus tourism impact and the second part was oil price drop. If you consider that I hold a $250K position in the Egyptian bond I had lost -$40K in a week and -$90K in a month in my account value. There are 100 million people living in Egypt and economy is far too big to fail. Expect an upturn on this bond’s price when Coronovirus issue is solved or when the oil price spikes up.

It sounds all doom and gloom for my account however you should see this as an opportunity! You have a chance to buy good bonds and stocks at a discount. The FIRE (Financially Independent Retire Early) journey is a long and difficult one. You got to be prepared for financial crisis. That is one of the reasons I am a fan of Government bonds. They are quite difficult to default but get ready for price volatility like what happened this week. On the paper my account value dropped significantly however I still received all my coupon payments from Oman and Costa Rica last week. These bonds have an expiry date of 2047. I am quite optimistic for the years ahead until then.

 

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