Singapore Interest Rates : Are the Waters Safe ?

A quick glance at global 10 year bond yields and we note that Singapore has bucked the trend in the past 3 months.

10y yields

With SG yields towering over the US, which has not happened many times in history, our curve is now looking quite surreal these days.

A friend just sent me this startling 6m interest rates chart, stripped from the HK, US and SG sovereign curves, and the results are quite eye opening.

6m fwd us hk sg 1

The likelihood that the USDSGD panic attack has subsided is high because SGD forward points came off in a hurry today as the USDSGD saw a death defying drop this morning at 8 a.m. that could be due to a BIG COUNTER TRADE IN THE OPPOSITE DIRECTION a.k.a. intervention.


The 6m forward points have collapsed.

sgd fwds 6m

And with Indonesia with their surprise rate cut today, along with further EUR weakness, SGD has regained some ground against the NEER basket.

My thoughts.

  1. Perhaps the Jan surprise shift in SGD’s appreciation slope was a bad idea because it only drew attention to Singapore predicament of higher rates when inflation slows (and our monetary policy limitations)
  2. Loss of confidence in the Singapore growth story is mounting, hearing talk amongst global investors on the lowered growth prospects of Singapore, making the investment case a poor one
  3. Lack of global investor interest will remain in SGS even with the attraction of higher yields because the currency is now only expected to appreciate about 1% at best and the reputation of Singapore being a highly illiquid marketplace is well known
  4. The last time MAS intervened or was known to have intervened in bond buying was back in early 2000’s when the first 15 year bond was issued and the market tanked heavily leading to, if I remember correctly, some talk of central bank buying and also a reverse auction, although my memory fails me
  5. Higher short end interest rates may last for a while because it would dissuade short sellers of the currency from selling more – do note that if you have bought USDSGD, it now costs you 0.73% in carry if you roll it forward for 6 months ( 6M SOR 1.13% vs 6M Libor 0.40%)

I think we are living in new times and a world of unconventional monetary policies that central banks around the world are deploying to combat deflation which has suddenly become everyone’s problem as the oil glut remains.

Sticking to textbooks may have gotten us this far but some ingenuity may be necessary going forward and I have always considered capital controls quite childish.

Maybe a big round of WAGE HIKES would do the trick ? So what if it eats into corporate profits, the stock market can afford it.