Bond Focus : Capricious Bond Markets Calls For An Ovine ETF Solution

This post was written for www.hnworth.com, a site targeting high net worth individuals in Singapore.

Have fun reading !

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Inflation is the taboo word in bond world given its automatic association with higher interest rates that is entrenched in the mindsets of even experts. Lucky for the world, the worry is for deflation which is good for bonds !

In Singapore, it has been slightly different this time round. For once, the market is flummoxed by the first time in a over a decade where we are expecting the SGD dollar to slow down her rate of appreciation against the other currencies in her NEER basket and that has caused short term interest rates to rise between 100-400% in a span of 6 months to the amazement of those unfamiliar with the workings of Singapore’s monetary policy.

SGS TABLE

The initial furore has abated to a general acceptance that we will be going into a Rising rate cycle, along with the US, whose rates have not risen half as much as Singapore’s.

This phenomenon of SGD rates closing the gap with the US is a rare one indeed and can only be appreciated by mostly the market professionals who make a living from trading the yield curve. For Singapore’s 5 year rates have surpassed 5 year Australian bond yields as well, something which has not happened since the Asian crisis back in 1997/8 and a blue moon event that normalised quickly.

Yet it has not been good for all bonds, in particular the corporate bonds which are fighting the tide of currency weakness (less offshore demand), higher interest rates (lower prices) and extremely poor liquidity (lack of market participants). Capricious times indeed in the year of the Goat.

I have bad news.

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