SGD Rates and Bonds Weekly

Economic News
Aug CPI 0.8% MoM vs expected 0.8%.
Aug CPI 2.0% YoY vs expected 2%


We saw a nice V shaped bounce off the lows in the rates after the slam dunk after the FOMC with rates dipping 5-20 bp before rebounding to its current levels. 6m SOR at a 1 year low of 0.29651 last Friday, USDSGD hit a 3 month low as well and hugging its 200 day moving average.

Fierce move in the market with cut loss activity on Thursday drawing out payers on the side which resulted in a rebound into yesterday, partly led by the rather abrupt sell off in the bonds. The 5Y bore the brunt of the curve move mainly on the 2-5 and the 5-10.

Rates outperformed bonds to end the week unchanged to 10 bp lower.

Got it dead wrong on the FOMC which has resulted in a huge loss of confidence in the FED. I was dead wrong on USDSGD holding its 100 day m.a. but the 200 day m.a. is the new support. The market is clearly undecided and I do not expect a load of new positions especially into quarter end next Monday.

We can be sure that market participants will not want too much volatility and profit disrupting moves. It would be safe to expect a quiet month end into the MPS in October where the market is expecting an unchanged monetary/fx policy of continued appreciation. Given that the rates have demonstrated a certain resilience I would not call for further correction from this point and last week’s lows will be the new support.

6M fwd fwd chart is uglier than ever.


What a short lived rally. The market woke from their frenzy which drove prices to 3 month highs and new lifetime highs for the new 10Y and 20Y issues on Friday afternoon which resulted in a messy sell off before the weekend that further capitulated into Monday on hawkish Fed comments.

Investors showed a preference for the benchmarks 5Y, 10Y and the 30Y issues, resulting in the yield convergence of the 20Y and 30Y papers. The short squeezed issues in the 7-10Y sector were also heavily covered. The 15Y was out of favour for its yield to rise on the week.

The 2.35% is proving to be a strong magnet for the 10Y and we are heading into the quarter end where investors will need to show some results. I expect prices to hold and be supported on month end portfolio rebalancing demands with the risk of early profit booking.

Still see no value in the bond market with market focus now switching to the debt ceiling debate and the various event risks ahead especially with sentiments being data dependent (Non Farm Payrolls next week).

Bonds outperformed on the week pushing prices higher for the year’s profits. The new 20Y bond rose to 101.27 after a post auction low of under 98. The auction price was 99.639. Best bond of the week was the 10Y SGS whose yield crashed to a 1 month low yesterday, mark to market registers ringing profits everywhere. Market short squeezes in the 5Y, 10Y  and 30Y added to the buying frenzy with offshore participants allegedly involved.

There is a certain determination this round which makes it hard to consider going short. As such I would expect this move to sustain into the month end and the end of 3Q for our little one way SGS market. Investors and investment books would welcome this move for much needed profits which may trigger profit taking particularly after the single largest (and highest yielding 5y at 2.365% since 2008) HDB 5y issue last week for SGD 1.45 bio.

Personally I see no more value in the 10Y at under 2.5%, so if I had bought at 2.65%, I would take the 2% profit on the price and wait for the next trade. The easier trade would be short term high beta trades.

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SGD Rates And Bonds Weekly ( 17/9/2013