Singapore Government Bonds – Not Safe Haven ?
Not so safe haven is apparent in the new 20Y auction yesterday which did not go down well at all.
The new 20Y SGS auction results.
Cut off Yield 3.40%
Average Yield 3.23%
Bid to cover 1.49 times
Coupon 3.375%
Price 99.639
The expectation was for 3.3% as the 30Y bond was trading 3.36% pre auction.
The result led to massive curve steepening and a sell off in the 30Y.
Pre Auction Yields
2yr 0.22% 0.26% -3 bps
5yr 1.03% 1.22% -0.4 bps
10yr 2.66% 2.86% -2.2 bps
15yr 3.14% 3.23% -0.5 bps
20yr 3.26% 3.30% -0.9 bps
30yr 3.37% 3.34% -0.1 bps
Post Auction Yields
2yr 0.25% 0.19% 0 bps
5yr 1.08% 1.04% 5.3 bps
10yr 2.76% 2.74% 8.3 bps
15yr 3.22% 3.19% 7.2 bps
20yr 3.43% 3.41%
30yr 3.49% 3.46% 11.9 bps
The new 20Y also weakened in price along with the rest of the curve.
This would be a first given the phenomenal rally in the last auction in June for the new 10Y bond when it rallied from a 2.85% cut off to 2.50% within 2 days.
Clients and traders alike avoided overloading, this time, on bonds given the whole EM uncertainty as well as the impending military strike on Syria. Thus, the smaller than expected 1.7 bio auction size did not help. (Typical benchmark size starts at 2 bio)
Total outstanding bonds have shrunk, SGS issued YTD SGD 9.5 bio vs the SGD 11.2 bio matured. The general lack of appetite could be attributed to the FED taper as well as the wilting USDSGD story.
At 3.43% for 20 years, audience have woken up to harsh reality and realised that the mad grab for yields is not a long term panacea, quite evidenced in the Reits sell off.
Yield levels are back to early 2011 prices for the 20 year.
| SIGB 3 1/4 09/01/20 | Sep-20 | 106.58 | 2.22 |
| SIGB 2 1/4 06/01/21 | Jun-21 | 98.98 | 2.38 |
| SIGB 3 1/8 09/01/22 | Sep-22 | 104.46 | 2.55 |
| SIGB 2 3/4 07/01/23 | Jul-23 | 99.93 | 2.75 |
| SIGB 3 09/01/24 | Sep-24 | 100.03 | 2.98 |
| SIGB 3 1/2 03/01/27 | Mar-27 | 103.08 | 3.20 |
| SIGB 2 7/8 09/01/30 | Sep-30 | 93.65 | 3.35 |
| SIGB 3 3/8 09/01/33 | Sep-33 | 99.16 | 3.42 |
| SIGB 2 3/4 04/01/42 | Apr-42 | 86.53 | 3.48 |
Drawing up this list of longer tenor govis, I am starting to see value in the 2027 and above issues. Given the flattening out of the curve after the 2027, the 2027 would appear to be the obvious buy.
The 10Y-20Y spread is below its 5 year average which is typical of rising rates, the >10Y yields tend to flatten for some to argue that the 10Y would be a better bet and indeed the 2024 stand outs against the shorter tenors, looking at this 6m fwd fwd chart for relative values.
But at 3.2% ?And at 103 price ? For the Mar 2027 ?
Chart wise, we are seeing resistance in the 20Y yields. The 5 year high is at 3.75% in 2008, which could be the next target if the 3.5% is broken. Risk reward looks fairly promising though.
The call would be to buy into Mar 2027, Sep 2030 and the new 20Y Sep 2033.
Market positioning would warrant a rally in them, especially the new 20Y which is sitting under water in the investment books. Prices should be desired to head higher to close 3Q13 profitable.