And We’ll Huff and We’ll Puff, To Blow Your Yields Down !


Its almost August and time to panic over Singapore rates again. ( I feel a bit pathetic sitting here and writing this on Sunday when my best friends are jetting off to Hudson Bay, off Winnipeg, to see polar bears and swim with the Belugas. )

With the amount of money rushing into the recent chunky perp issues, not to mention the historic lows in almost every single government bond on the curve, it is definitely Leverage Heaven !

The most frequently asked question right now is  WILL SINGAPORE RATES GO LOWER ?

Will we have negative SOR and rates again ?

It does appear logically challenging to imagine that in normal times. But times are not normal right now. We have 5 European states with negative yields now as Spanish and Italian yields soar.

20-Jul-12 SF Chronicle Yields On European Bonds Turn Negative
21-Jul-12 The Globe and Mail Negative yields are spreading across Europe

I mentioned National Disparity last week. And it is getting worse. The beauty of this mass hysteria is that countries like Belgium and Portugal seem to have been shunted from it despite their obvious problems.

Why not Singapore then ? To get negative.

As an astute observer put it, Singapore does not have money flowing back onshore as the Europeans do and there is a clear FX risk in parking money here at such poor returns.

FX risk ? Does not appear apparent with the SGD NEER at +150 bp over mid band these days and one of the highest inflation rates in Asia which comes with a promise of SGD appreciation as per our monetary policy.

I do not know whether to applaud or commiserate the news of Category A COE prices at historic highs when our bond yields are at historic lows (and traffic conditions worsening with the out of control population- read my previous post). This is a Catch 22 situation where inflation can never be beaten unless you are living abroad, what an oxymoron.

The best situation appears to be if you lived overseas and invested in Singapore to capitalize on the SGD appreciation, reap the returns of its growth and yet be spared the agony of the inflation and prices onshore. Great news !

So why have our bond yields not turned negative ?

To be fair, they did briefly. Last Aug/Sep, in the topsy turvy world of negative fixings and market mayhem.

1. Local investors do not need negative rates and will not be buying anything negative with the plethora of perpetuals, Reits and sub debts.

2. Regional investors do not need the safe haven status of Singapore because their own countries are doing great (Philippines was upgraded just 2 weeks ago to BB+ by S&P).

3. Global investors will not take the risk of putting too many eggs in this basket because

  • SGD is not an international currency (Sect 757 prevents funding in SGD offshore unless its for the purpose of buying SGD assets)
  • SGD is part of a, mainly, regional basket of which all yields higher returns than SGD
  • so why invest in SGD when the currency will weaken alongside the MYR and rest of the NEER basket ? (in the event of a crisis of confidence
  • why invest in risky bonds, government ones included, when the marketplace is mostly illiquid, dominated by powerful local banks, with an inavailability of hedging options ?

SGD NEER again !

The SGD policy is a boon and bane currently although it was conceived by sheer brilliance in 1985. That policy had allowed for the, then, struggling economy find its place in the global marketplace, a process which took over a decade. It was a time of explosive growth which led to immigration to temper labour demands.

Growth led to the country being able to continue to strengthen the SGD which in turn combatted inflation and encouraged capital inflows.

Do we need that now ? When we are in the process of economic and social restructuring ?

I dare not expound any further for fear of attracting criticisms from the vast majority of the more learned folks out there. I am still smarting from the insult from a government scholar economist some months back, who suggested that common folk like myself stop asking too many questions about policies coming from our ignorant standpoints.

Singapore the Great

Singapore will flourish. People are still pouring in. For all the firings I have witnessed in the past months in banking, I met a few people who just relocated here from New York last Friday, to work in a bank, of course.

Taxes are low. The environment is safe and clean (unless you have been out to Jurong West like I did last Friday and came back, car covered in a fine suit of unknown particles). The currency is as strong as the world would believe it to be. And we have a stalwart government.

As for negative yields, my fingers are crossed. It will not be manipulated to happen, BUT IT CAN SURE BE MONOPOLISED to !

Just check this out…..

More later….