SGD Rates Weekly : Sibor For Your Thoughts

Given the increased interest in local rates amongst readers, we shall be bringing back the Singapore rates weekly that we used to publish in the past. I have decided to change to a less severe style than the trader talk we had in the past.

Let’s hope readers will find it useful.



Economic News :

13/03    Unemployment Rate S/A 1.9%, expected 1.9%
13/03    Jan Retail Sales Ex Auto YoY -8.7%, expected -2.3%
Jan Retail Sales YoY -5%, expected -0.1%
Dec Retail Sales YoY revised to 4.6% from 2.6%
17/03    Feb Electronic Exports YoY -12.5%, expected -7.7% prev 5%
Feb Non Oil Domestic Exports YoY -9.7%, expected -0.9% prev 4.3%

Big news in the headlines today as Singapore’s founding father, Lee Kuan Yew, remains in hospital with a new infection.

This masks the other headline in bond space that Singapore Surpasses Australia With Highest-Yielding AAA Debt which is starting to make the whole situation look a little foolish to observers and frightening to investors.

The question in mind is whether Singapore will continue to buck the trend or will some common sense prevail ? But it does look like some people are not willing to wait with rumours of a sovereign wealth fund liquidating a chunk of 200-250 mio worth of SGS last week which is not doing the market any favours after last month’s 30Y bond auction which is now underwater by about 2.5 cts at 95.40 (3%) versus auction price of 97.93.

I find it perplexing that SIBOR is rising when overnight funding rates are not really going through the roof despite MAS’s supposed interventions in the USDSGD space. It would be reasonable to expect some intervention some time as the SGD continues to trade outside the NEER’s bandwidth.

(With the intervention, MAS would be buying selling USD against the SGD which means there will be a shortage of SGD in the system that they would then pump back into their daily liquidity operations.)

The other consideration is that bigger banks have not started on deposit taking drives yet, a sign that there is no shortage of funds in the system and our bank balances are still earning the measly 0.05-0.1%.

Thus it could be that the play for the higher SIBOR is mainly for the benefit of loan books as local banks struggle to book profits for the year noting that retail and corporate loans are not growing.

mas loan growthSource : MAS Monthly Statistical Bulletin

Unfortunately, the main driver of SG rates will be Janet Yellen this week and I find sentiments in the bonds and rates firmly bound to the currency and its strength against the USD.

My take is that bond investors will start coming back to Singapore once the re-centreing is over in about a month’s time after MAS’s semi annual Monetary Policy meeting and once we get a clearer picture of where the FED stands.

My explanation is that when the re-centreing (devaluation) is done, the expectations for further policy action is reduced and as such, the FX fwds will ease lower leading to lower fixings and for rates to normalise lower or, at least, stop rising.

SGS is looking very attractive relative to inflation, there will be a 7Y bond reopening to be auctioned on 27 Mar for settlement 1 April. The auction size will be announced on 20 Mar. The expected auction size is about $1 bio which is on the small side because of the price action we have seen in recent days that contrasts the bond rallies around the world.

Details : SGS 2.75% 07/2023 ISIN 3260987684 (Current price 102.50, 2.415%)

On the 6M forward 6M rate chart, the 07/2023 looks relatively expensive compared to its neighbouring bonds in the 2022 and 2027.

6m fwds

It might be worth going in to auction for a long tail (although it is hard to see one with a small issue size) and catch a yield >2.5%.

The irs curve has made some new records again – 3Y irs breaking its 5 year high last week as 6M SOR fixed at its 5 year high yesterday evening. I still find it hard to imagine the curve going much higher from here just from pure fundamentals and in the absence of speculation and/or speculative attacks.

Banks should be sufficiently paid up to hedge their loans by now and we should see some profit taking if the FOMC is a non event.

A final thought : I am reminded of the time in 2003 when SG rates started climbing before the rest of the world which was reeling from the effects of SARS and Operation Desert Storm, and I am not sure if 2015 will be the same ?