SGD Rates and Bonds Weekly
Feb CPI. +1% MoM vs expected 0.4%. +4.9% YoY vs expected +4.1%.
CPI nailed it in the coffin for the USDSGD yet IRS remains directionless without the SGD story to power it lower despite the rally in the UST which was buoyed by the uncertainty of Cyprus and the Fed buying back USD 11 bio in the market.
News on the equity front is none too promising with EM stocks suffering their worst quarter since 2008 (Thai SET & Jakarta both down on the week) which is holding the short end rates up as well as the Japanese year end. Basis swaps seen supported.
Flows were light with the 5Y irs testing 100 day m.a. support on local selling interest and 10Y irs holding unchanged. Overall local banks in charge.
Expect a quiet week into Easter weekend, coupled with the upcoming SG MPS in early April. The assessment is that it is difficult to position meaningfully in the SGD rates market in the face of local bank interest and global uncertainties. Best to stay on sides.
Action centreing on the long ends on risk off trades when news of Cyprus hit. Most volume in the 10Y and Mar 2027 SGS which erased their gains into the week on profit taking out of trading books.
The new 5Y auction for SGD 3.1 bio, which will be the largest new 5Y issue in history, today will be likely to be a non event given the maturity of SGD 5.2 bio next week. Should see balance sheet buying support the yield into the 0.40-0.50% range. We are already seeing demand for tbills pick up with the 3M bill cut off at 0.22% yesterday vs last week’s 0.27%.
Cannot see yields going anywhere from here as the market sits comfy. Possible rally after the auction on the usual profit boosting jam up but will not expect that to last beyond 5-10 bp.
1. Bank of China 1Y 0.9% SGD 203.50 mio
2. ASL Marine 4Y 4.75% SGD 100 mio. Current Px 100.50/101.00
3. CDL 10Y 3.48% SGD 150 mio. Current Px 98.00/98.50
New 5Y Bond Auction Cut Off 0.57%. Coupon set at 0.50%.
Bid Cover 1.7 times which is decent considering its big issue size.
Dear tradehaven, it is true one can hedge bond portfolio against a rising Interest rate environment by means of using swaps? If it is true how does one go about to do? Heard something along this line but I might be wrong.
Yes, you can hedge a bond portfolio against a rising rate using swaps. Pay fixed (long tenor), receive float (short tenor). Basic mechanics of it is paying the coupon (which is fixed) and receiving short term rates (which gets refreshed every 3 or 6 mths). In a rate rising environment, the short end rates should rise. When the floating portion gets repriced, you get a higher rate.
For the private investor, they only give swap/derivative lines to the top tier clients.
But CME has interest rate futures now for USD. Wonder if we still need ISDA for those ?
I read the following wire article yesterday, 26th March 2013. 0.48% (point four eight percent) for Singapore’s latest 5-year debt raising! Makes me wonder if there simply isn’t far too much money chasing a home. Presumeably good news for Singapore corporate bonds when treasuries are yielding at such ridiculously low rates? But surely this isn’t sustainanle? (I insert question marks because I do not understand how these kind of pharmaceutical yields attract an over-subscription of bidders) ………………………..
S’pore 5-year note sale gets lowest yield in 26 years
26 March: SINGAPORE – A S$ 3.1 billion sale of five-year Singapore Government notes has drawn the lowest average yield in at least 26 years amid demand for top-rated debt, Bloomberg reported on Tuesday.
The 0.5 % Singapore Government Security maturing in April 2018 fetched an average yield of 0.48 %, the Monetary Authority of Singapore said. That’s the least on record going back to 1987, data compiled by the MAS show. The auction drew bids valued at 1.7 times the amount on offer, down from 1.97 in the previous offering in February 2012.
“Singapore continues to have a healthy fiscal position and huge external surplus. That has lured funds into Singapore Government Securities.” said Credit Agricole strategist Frances Cheung.
The island state is estimated to have a budget surplus equivalent to 5.1 % of gross domestic product this year after adjusting for extraordinary items, according to figures from the International Monetary Fund, the most among the nations it tracks. Singapore receives AAA credit ratings from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.
This is not the lowest yield. Before the auction, just earlier this year, the then 5Y benchmark went to 0.14%. And for your information, rates did go negative for about a month in 2011.
These are banking book bonds which are necessary for banks to hold in their balance sheets in order to support their deposit base.
My pet peeve is that because of the huge demand for govis, retail investors will never get a fair go at them, in addition to the fact that Singapore has no intention to issue linkers.
I wrote some stuff about SGS on another blog http://www.bondhaven.wordpress.com .. was too lazy to finish the whole thing but will endeavour to have a buying guide of sorts out soon.
Do check it out if you are interested in learning a bit more about them. Tbills are not a bad investment if you have short term cash earning zero.
Good luck !