Slow but steady week with nice technical moves in the swaps. Thin liquidity allowed breaks upwards after failing to break lower into month end. The 5Y swap broke above its 50 day moving average while the 10Y is above its 100 day, egged on by the fierce sell off in bonds, while the short end remained suppressed on the subdued 6M SOR. 10Y irs is approaching its 3 month high and interest remains in steepening and the 5y5y forward swap.

It does look like the possibility of higher interest rates is starting to take root with the MAS sounding alarm bells in their annual Financial Stability Review. Interestingly, the M2 growth has been on a tapering trend after peaking in May.

Singapore M2 5Y chart

The language used cannot be plainer.

“”Looking ahead, should advanced countries start normalizing policy, interest rates in Singapore could rise from the low levels which they have been at,” the authority said.
“An unexpectedly sharp increase, especially if it comes earlier than expected, could strain the debt-servicing ability of over-extended borrowers.”” Source : Bloomberg

Time is of the essence here with the FOMC coming up on the 19th of this month. Regional uncertainties in Thailand and uneven growth around the world is unlikely to cause much delay. Luckily, the market does not appear to be running shorts and this round of paying is probably positioning for hedgers to come out. Bank book hedging will probably not extend past 5 years for most loans and mortgages average in the 3-5 year tenors.

A point to note is that unexpected outflows can and do happen in this part of the world, with all eyes on Thailand at the moment which is why it is not advisable to leave those short end shorts unattended to, even if it is for curve steepening purposes.


A nasty sell off to continue with Singapore tradition for December. Nothing can stand in the way of banking books which are clearing making their presence felt as the backbone of the Singapore bond market and may the one with the biggest books win.

Volumes have been unusually light into month end and banks could not wait till 1 Dec to sell although today looks like dump fest. Tenors targeted were the 2018-2022 maturities but the long end 20Y and 30Y remained largely immuned and still inverted.

I have been informed that this curve inversion (20-30Y SGS) could be attributed to the expectation of the final draft of the Risk Based Capital framework for insurance companies that is due to be out by year end, forcing insurance companies to extend duration at all costs especially with insurance assets growing at 8-10% annually onshore.

Given that the auction calendar has already been set in stone for next year, there is every likelihood that the inversion can only get worse from here.


Like I said last week.

“It is hard to see any overwhelming reason to load up on bonds going ahead into year end or even positioning for a rally next year. Thus, quiet it will be and any moves will be instigated by the investment books (like I have said before) and that information would be a closely guarded insider secret. But if history is anything to go by, it would be in the form of lightening.

Not bullish at all.”