Through The Looking Glass – SGS Auction Calendar 2014

There is something facetious about issuing bonds when you really do not need the funding but when you are compelled by a fundamental need to have a yield curve and bonds that provide a certain yield, as close to zero as it may be, to ensure that the banking system has sufficient assets to count as liquidity.

There are certain merits in the forward guidance when you publish a bond issuance calendar a year in advance. For one, the market knows exactly what to expect and even Malaysia has picked up the scent or sense in doing that and they have started to publish their MGS calendar before the start of each year. The downside would be that markets over run themselves because they know too much about what to expect like the insane rally we saw in 2011-2012 and the exploitation of the vulnerabilities of the SOR fixing.

Well, we have the auction calendar for next year published yesterday.

2 extra auctions next year to make up for the extra maturities.

2013 saw SGD 3.9 bio worth of new bonds.

Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 TOTAL
BONDS 2Y NEW 30Y 04/2042 5Y NEW 7Y 06/2021 10Y NEW 20Y NEW 2Y 04/2016
SIZE 2.9 BIO 1.2 BIO 3.1 BIO 1.6 BIO 1.8 BIO 1.7 BIO 2.5 BIO 14.8 BIO
MAS 300 MIO 200 MIO 0.5 BIO

2014 is likely to see less if we assume reopenings at 1.5 bio each and new issues at 2 bio.

Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 TOTAL
BONDS 5Y 06/2019 10Y 07/2023 2Y 04/2016 20Y 09/2033 7Y 06/2021 15Y NEW 10Y 09/2024 2Y 09/2016 5Y NEW

Note the effort to increase the issue sizes of the new 10Y and 20Y issues to make up for their less than ideal benchmark sizes (a typical benchmark is . Both issues came during an awkward time, in the period of heightened EM uncertainty and as such, a conservative polled number resulted in the smallish sizes. This has been profitable for buyers and both bonds have rallied 5% since their auctions.

Other Observations :

  1. Only 2 new bond issues versus 4 new issues in 2013, balancing the 2 additional auctions for the year.
  2. There are no new bond issues which makes the 1st half pretty bond friendly even if we have 2 long dated reopenings in the 10Y and 20Y bonds.
  3. No new short end 2Y bonds with only 2 reopenings for the year and no new 5Y till 4Q14. Granted that the 2Y-5Y are the favoured tenors for bank investment books as well as portfolio managers, we are likely to continue to see the short squeeze in short end yields for a while especially if we see renewed offshore inflows into SGD.
  4. With potential demand for 2-5Y papers, the corporate bond market could be encouraged to originate some high quality papers such as the likes of supras and highly rated offshore government linked agencies that will help keep interest rates low when the proceeds are swapped back into USD.
  5. No new 30Y or reopening which will keep the 20-30Y spread flat.
  6. 2 10Y reopenings in a year is unseen before. Perhaps there is interest in anchoring the 10Y as the major benchmark for market reference giving ample supply for less potential of market short squeezing.

I am surprised that MAS is slowing the supply of the 2-5Y, given the pace of Singapore’s deposit growth which has appeared to have tapered off in the past few months. It is well known that majority of those papers sit in investment books untouched for purposes of liquidity management. 5Y bonds are impossible to trade with their artificially suppressed yields and often at the mercy of the balance sheet players who dump and buy in big waves that rock the market for weeks in its oversupply or short squeeze effects.

It may be that the new 6M tbills  introduced this year have absorbed some of the 2Y demand given that the bills and the 2Y papers trade at almost the same yields.

Or perhaps MAS foresees that the deposit growth may start to wind down a little in the future following that the SGD policy is likely to remain unchanged for a long time and as such, will not attract overwhelming inflows coupled with the potential taper and pullout of QE monies from the region.

The conclusion is that the MAS’s goal is primarily to manage the demand and supply of SGS effectively and efficiently, using their magic mirror that sees the future and lay people like me cannot possibly understand black boxes like those. I would also suspect their motive would be to send the message that the world cannot go wrong in buying SGD bonds just observing that only 4 bonds in the entire lot of 20 are trading under 100 whilst the new 10Y and 20Y are both 5% higher since launch.

Thus it looks like the issuance calendar for 2014 is a conservative one and would be bond friendly minus the little blips in between caused by greedy primary dealers out to squeeze extra profits. On a dark note, conservatism could also imply caution for the taper in the year ahead.


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