Rubbing Salt Into The Wound – Singapore Bonds

17-Aug-12 Bloomberg Singapore Bonds Beat Peers in Shrinking AAA Pool: Southeast Asia

Slap me because it must be a bad dream within the pipe dream of our lives.  The headlines are unrelenting. First, we have Singapore is the richest country in the world by 2050 (16 Aug) followed immediately by, the healthiest country in the world (17 Aug).

Then we have THE BIG ONE above – Singapore Bonds Beat Peers ?

A cheeky alternative title could be SINGAPORE HAS THE HIGHEST NEGATIVE REAL INTEREST RATES AMONGST ITS PEERS !

I wrote this last month. https://tradehaven.net/2012/07/12/seriously-singapore-is-not-bad/. Yes. Seriously, Singapore is not bad.

But I am severely confounded as to why Bloomberg would publish a headline like the above when almost SGD 2.5 billion worth of corporate securities (DBS sub debt, Keppel T&T, Ascott Residences, NTUC Income, Mapletree Fin Svcs etc) have flooded the streets in the past 2 weeks, only to encourage the public to plunge headlong into the quagmire of a mini debt bubble ?

The Today paper only skimmed the story and missed out little details like this one.

The 10-year yield may climb to 1.74 percent by year-end, according to economist estimates compiled by Bloomberg. Based on that forecast, investors who bought the securities yesterday would lose 2 percent.”

“BlackRock’s Carrillo. That will make “government bonds attractive in the inflationary environment, especially for foreign investors.”

It does nothing for Singaporeans. Only foreign investors. That is because they do not have to live with the inflation !

Again quoting the article : “With prices near record highs, government securities at all maturities yield less than the inflation rate, damping their values. Singapore’s consumer prices rose 5.3 percent in June from a year earlier, the fastest pace in Southeast Asia after Vietnam

The article is obviously intended for the larger global audience of Bloomberg and taken out of context by the Today paper. Essentially telling American and Japanese housewives to come and share the pie of Singapore’s free currency appreciation policy.

“Singapore government bond yields offer an attractive position,” said Christian Carrillo, a director and senior rates strategist for Asia Pacific fixed-income securities at BlackRock Inc. (BLK), the world’s largest money manager that oversees $3.56 trillion. “On top of that, you get currency appreciation as well.”

Yes. For everyone of us here who moans about inflation, there are dozens outside the country who are cheering it on. Because they will then get their free appreciation of the SGD.

Yes. We are rich but we are also paying SDG130,000 for an entry level Toyota, SGD168,000 for an entry level Mini and SGD230,000 for a small BMW.

SINGAPORE MPS AND THE FREE LUNCH MACHINE

This is my suggestion for Singaporeans reading this.

Sell USD and buy SGD. Borrow the USD which you should not have (ie. leverage it off your portfolio of assets – check with your banker). Use the SGD to buy an asset onshore for as long as inflation remains high and then unwind the trade once inflation tempers off. Foreign bond buyers will not be hanging around for long if Singapore becomes deflationary.

Next week we will have the Jul CPI numbers. The Non Oil Domestic Exports yesterday already suggests that growth is healthy, and thus, if inflation continues to hold above 5%, we should have low to negative interest rates for a while.

I am embarrassed to be giving a counter intuitive suggestion like this one. But I am Singaporean and I am proud to be healthy, rich and DIFFERENT ?