Through the Looking Glass – SGS Auction Calendar 2015 and Mini Auction Update

The MAS is getting savvy. Reducing the government bond issuance next year and throwing in the “mini auctions” just when the US is running out of bonds to sell given that the Federal Reserve Bank owns about 34.57% of all the 10Y equivalents out there.

It a move to be applauded, taking the first step towards flexibility and staying on top of things instead of letting the market run around them around like *&$%’s !

They evidently are working overtime !  We are seeing an average of 3-5 consultation papers a month since July this year compared to an estimated 21 (assuming I counted correctly) for the entire of 2013. http://www.mas.gov.sg/news-and-publications/consultation-paper.aspx

This auction calendar sends me the message of RESPONSIBLE DEBT MANAGEMENT. And Singapore corporates should do well to heed the message.

The 2014 auction calendar was a kind and generous one. Every single SGS issue this year is IN THE MONEY (which is more than I can say for the corporate bonds)  and not just in the money, some are up quite a lot of money such as the 10Y bond reopening in March this year. The bond price is up over 2 cts (from 102.50 to 104.75 today).

Table of Government Bonds issued in 2014 and their profits in yield terms

We had a massive issuance year in 2014. SGD 18.8 bio vs SGD 14.8 bio for 2013. But 2014 saw only SGD 3.4 bio worth of new bonds vs SGD 3.9 bio in 2013, like I predicted (which has not too hard). https://tradehaven.net/market/through-the-looking-glass-sgs-auction-calendar-2014/

Mini auctions are so cute ! The word “mini” connotes a gentle, friendly and un-hectic  event with only happy endings to expect. http://www.sgs.gov.sg/~/media/SGS/SGS%20Announcements%20pdf/MiniAuction%20Announcement.pdf

Let’s take a look at next year’s offerings.

Noteworthy :

1. No new issue of long end bonds and the new 10Y in Jun 2015 is longest one we get, with reopenings in the 15Y and 30Y.

2.  It makes sense to have the mini auctions because the maturity next year of SGD 9.2 bio will be the smallest we have seen since 2008.

3. The supply picture for the first half looks pretty light, leading to 2 big new issues mid year which makes the 5 year a nice sweet spot till mid year.

4. My guess is that the first mini auction will be a short end 2-3Y bond given the maturity picture – Feb and Jul, which will leave the market short in supply besides the fact that short end auctions are generally well received by the market given the less disruptive nature of their assimilation into the non trading books.

5. This is a friendly calendar if we consider the dreaded rate hikes to come out of the US in 2015.

Let’s review the SGS curve now and where it was 1 year ago.

 

• 5 year yields are up 0.78%, 10 year barely changed and the 20Y/30Y yields are lower.
• looks the 30Y auction in Feb does not come a moment too soon.

A Final Word

The Singapore bond market is not going anywhere because it is still really too small to be on any serious fund’s radar.

Japan –  USD10 trillion vs Singapore USD 250 billion which Norges Bank or Pimco can pocket comfortably and still have room to buy up Malaysia, Philippines and gang.

But it is a necessity if we are going to keep that AAA rating and our banks healthily capitalised.

My wish for 2015 is for the retail market to take a keener interest in the government bond market because it is really pretty accessible now, being quoted on the stock exchange (on much wider prices) and private bankers cannot really add too much margins on them (or at all) because the price levels are very transparent.

These bonds are AAA rated so you cannot ask for more which means the leverage is HIGH. And the MAS is committed to keeping the market going which means they are not going to flood the marketplace and borrow irresponsibly.

Having said that, 2015 will be a hair raising year, at the rate the ECB and BoJ are printing and the Fed hiking.

Keeping a liquid portfolio and actively managing it is a good strategy, in my opinion.

Good luck !