SGD Rates and Bonds Weekly

Economic News
2Q Final GDP 15.5% QoQ vs expected 14.2%
2Q Final GDP 3.8% YoY vs expected 3.5%

IRS

It was a short week for Singapore with most of the action in USDSGD happening when the rates market was closed. It looks like 1.26 would be the support in the meanwhile as services continue to buoy the economy while manufacturing continues to flounder which should puts our policy makers in a tight spot.

Economists are not pouring cold water yet although I note a local bank changing their year end call to 1.30 for the USDSGD (don’t ask me what they said 3 months ago). The main gist is that growth exists and it is afterall coming from a higher base (on top of last year’s performance) which should continue to support the existing policy stance unless inflation were to taper off quickly. (I say inflation, because it is harder to expect the other factor i.e. economic outlook to change very much).

So the safest assumption on the Oct SGD policy would be still to remain status quo.

For the week in rates, volumes were light into the long weekend and this loaded week where we will get a better sense of the outlook.

I repeat what I wrote last week.

“It does look like rates will remain in limbo for the time being and enjoy some relief from the long weekend that starts after tomorrow. The near term risk would still be to position on the steepening trend we have witnessed in the last 2 months.

I would not be too optimistic to hope for the return of QE days, suffice that a relief rally could be in store as evidenced in the SGD-USD 5y5y spread widening.”

From the 6M fwd fwd charts, nothing has changed too.

SGS VS IRS 6M FWD FWD CHART

SGS

Quiet week with most flows concentrated on the good old (newly issued) 10Y SGS whose price saw a lifetime high of 103.70 (issued price 99.135) last week.

At its current yield level (<2.4%), this bond looks like it has run its course before the 20Y auction this month end.

I repeat what I said last week.

“It does not make sense to be over exuberent on bonds at the moment. Profits should be taken off the table where and when there is any.”

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