SGD Rates and Bonds Weekly

Economic News
Jun Non Oil Domestic Exports -8.8% YoY vs expected -5.8%
Jun Non Oil Domestic Exports 3.2% MoM vs expected 2.4%
Jun Electronics Exports -12.4% YoY vs expected -9.7%
Jun CPI 1.8% YoY vs expected 1.8%
Jun CPI 0.2% MoM vs expected 0.3%

IRS

Uneventful week with USDSGD chopping between 1.26 and 1.27 in an indecisive marketplace. The June NODX had a pretty poor showing though I am not sure if it could be the “haze effect”.

Trading wise, the market took new interest in the 2-5-10Y butterfly in patchy trading as  market players continues to shrink and trading is dominated by a few, deterring the rest from taking positions. The short end remained capped with the 6M SOR holding near its 12 month low of 0.32 for the past 6 weeks in a truly stagnant market.

As the slowdown continues to take root, we can expect heightened vigilance out of regional central banks which makes positioning difficult. Nonetheless, the short end should have found support and if the outlook takes a turn for the worse, we can expect the short end of the curve to hold their ground and be the first port of call for hedging efforts. In addition, today’s MAS revision of the inflation outlook is supportive of the USDSGD which makes a case to be paid.

I like the 1Y1Y forward at 0.70% (currently 0.77%) which looks like a support. The 5Y should be consolidating at the current 1.5% area.

SGS

Activity slowed into the week and yields only rallied after the weekend with Bernanke out of the way. Buyers favoured the belly to 10Y papers on short covering and curve plays while the long end >10Y saw little demand probably on street lightening into the new 20Y auction next month end.

The search for yield from investors extended past the 2-4Y papers, yielding close to nothing now, after the gargantuan maturity on 1 Jul and we saw the 5-8Y papers taking their turn to shine for bonds to outperform swaps in all the tenors except the long ends.

10Y yields under CPF rate again for the average Singaporean to lose out. I am not a strong supporter of bonds at these levels especially after the inflation forecast has been cut.

The fwd fwd chart shows a huge steepening in the SGS curve >3Y which vindicates the buying we saw in the past week. The 2020-2021 still looking expensive.