SGD Rates and Bonds Weekly



Economic Data15 Mar
4Q12 Final Unemployment Rate 1.8% (prev 1.8%)
Jan Retail Sales YoY -2% vs exp -0.1%
Jan Retail Sales ex Auto -4.9% prev -0.4%
Jan Retail Sales MoM -1.4% vs exp 1.7%
18 Mar
Feb Non Oil Domestic Exports YoY -30.6% vs exp -16%
Feb Non Oil Domestic Exports MoM -2.4% vs exp +4.7%
Feb Electronic Exports YoY -27.4% vs exp  -16.3%

SGD Rates

The global game of government confidence continues and the SGD short end collapsed led by the 6M SOR which fixed under 0.40% for the first time since June last year as 3M Libor fixed to its lowest since June 2011. Liquidity continues to be more than overeasy, shoring asset prices higher. Disquiet in the marketplace as the market awaits more government measures on car and housing loan regulations. In addition to the semi annual MPS due mid April, we have a 5Y bond auction coming up at a none too attractive expected yield levels of 0.40-0.45%.
Price action in the SGD irs continues to weigh heavy on the topside with the 5Y and 10Y resistance at 1% and 2%, respectively. A breakout either way is unlikely at this stage which simply represents the uncertainty gripping market players.
Given that the SGD curve has outperformed the USD on the week, the trade would be to continue to test the resolve of the central bank and the pain trade by selling into rallies and play for a neutral policy outcome with option to tighten in the next meeting on a recovery story.


Bonds not having much luck at all. Sell on rallies remain the main theme. Long end papers came under selling pressure even with the UST rally on the week yet yield levels continue to hold tight on limited supply. The 10Y and 15Y SGS were the most active with position unwinds. Tbills not seeing much demand for this time of the year despite the MPS coming up, suggesting that trading accounts are not positioning for policy changes.
The short end 1-3Y papers also seeing good 2 way flow on local bank demand vs another local bank profit taking.
Going ahead, we have the 5Y SGS bond auction announcement expected today for auction on the 26th. The issue size is expected at 2.5-3 bio against a maturing amount of 5.2 bio on 1 April. Yield range at the moment 0.40-0.45%.
SGS should be benefiting from reserves diversification and yet it is not happening. Market concern appears to be on shrinking loan books going ahead which implies less need for liquid assets.

Corporate Bonds

The new HDB 3Y 0.943% cracked the short end HDB yields. Overwhelming demand for the new paper saw its issue size upped to 1 bio from initial size of 600 mio. The short end HDB vs SGS spread continues to widen while the long ends are staying put.

Bank of China Aviation (BBB-) issued a new 2Y SGD at 2%, the lowest coupon it has ever paid for 2Y. Previously, they were paying 2% for 1Y.  Issue size 75 mio. The mad grab for short end yield continues.