SGD Rates Weekly : A Sibor For Your Thoughts

SGS TABLE

1M LIBOR   0.17975%
3M LIBOR   0.27375%
6M LIBOR   0.40115%

2/4/15
Mar Purchasing Managers Index 49.6 vs expected 49.6
Mar Electronics Sector Index 50.1 vs previous 49.8

The SGD continued to strengthen against the NEER basket as the date for the MPS (monetary policy statement) is announced for the 14th of April along with the 1Q15 GDP numbers at 8 am, a week from now.

A busy week indeed as we have the BoJ, BoE, Fed minutes and speeches coming up, not forgetting the RBA today, who chose to do nothing despite market pricing in a 78% chance of a rate cut.

USDSGD saw support on its way down before cracking the 1.36 level on Friday after a rather disappointing US Non Farm Payroll number that blindsided the marketplace on a public holiday in most places with the long Easter weekend to follow.

I would expect activity to remain subdued into next week with central bank risks taking centre stage even as oil prices continue to challenge recent tops and its year high of $55. Thus I would stick to last week’s call for the USDSGD to consolidate around the 1.35-1.36 region before the next move which is likely to be higher towards the end of this month.

I believe buying opportunities would arise into the MPS where the market is now expecting a band widening instead of re-centreing.

The immediate implication for a wider band would be heightened volatility that would abate in the long run as speculative interest wanes. The wider band would also justify the higher short term rates which are showing signs topping out as long end swap and bond rates have all but collapsed in the past week, making 3 month SIBOR look a little foolish fixing at a new 6 year high today while the 1 month and 6 month are holding at their highs.

Widening the band would also signal that the MAS acknowledges the volatility stemming from the rest of the world that the SGD cannot be isolated from. Thus giving them some respite from the need for regular intervention.

I believe that the chances of a re-peg has become remote at this moment, as the rest of the world stands by on bated breaths for the next major central bank to cut their rates and it does not look like the need is more pressing now that the US is still on schedule to begin their hike cycle in the months ahead.

The best scenario for speculators and traders would be if MAS does NOTHING and say everything is alright.

The USDSGD would probably crack 1.35 in panic, then 1.32-1.33 would be ideal entry levels to buy and wait for the next deflation print to take profit.

As for the rates, it is gratifying to see bond swap spreads widening back out and rates easing lower and the 10Y bond back at 2.1% when it was 2.51% just less than a month ago. 2.1%, the no fun level for investors and traders.

The MAS mini bond auction was announced last week for a typical and safe (and cannot-go-wrong) first auction bond – 2 years (SGS 0.5% 04/2018) which is going at around 1.32% mid on a cash price of 97.60.

mini sgshttp://www.sgs.gov.sg/~/media/SGS/SGS%20Announcements%20pdf/Bonds%20PDF/MiniAuction%20Announcement_May%202015

With the STI Index breaking a new 7 year high this morning, I am hardly excited for rates and bonds.

Good luck till next week !