SGD Weekly : Timely Elections
I am thankful for the upcoming elections because these are times were we desperately need some distraction.
It has been an atypical week because we do not often get Minsky moments in markets and I daresay that we just experienced one sometime between last Friday and yesterday.
Not often do we have SOR breaking 6 year highs which technically happens once in 6 years ? or everyday thereafter ? (joking, of course). Yet SIBOR rates are not showing signs of doing the same although levels are tending towards April highs but I will bet that nothing gets broken before the elections.
So we are at an inverted swap curve with the 6 mth higher than the 1 yr.
So much for the AAA safe haven idea, Singapore flops as SGDMYR and SGDIDR made a historic highs of 3.0282 and 10,012.01 this morning.
Thus SGD govt bonds are lucky to get away on the week unchanged compared to the sell offs we are seeing in 10Y Malaysia (+0.08%), 10Y Indonesia (+0.34%), Thailand, Taiwan and Philippines.
Going ahead, we should see government bonds supported and I would heartily take the advice of the BT article this morning, “Singapore bond market resilient amid stockmarket rout”, to invest in govis over the corporate bonds which they claim are holding out, that spells a great opportunity for investors to sell at minimal loss and either re-invest in markets that have corrected or into safer instruments like govis.
I would also point out that the new OCBC AT1 perp is holding up well at 99.50 after its issue last week when the bank stock has been battered which should get value investors re-thinking of their allocation between perp and stock.
We will have the 15Y SGS govt bond auction this Thursday, 27 Aug. Announcement : http://sgs.gov.sg/~/media/SGS/SGS%20Announcements%20pdf/Bonds%20PDF/2015/NZ10100F
It would do well to play for a long tail of >3.05% for that against the current yield of the SGS 09/2030 of 2.99% and the old 15Y bond, SGS 07/2029, that is trading at 2.87%.
As for the rest of the curve, we would only expect govis to remain supported in such times even if the swap curve inverts which makes it all the harder to trade after the 1-3Y swaps made 6 year highs, the 4-5Y swaps made 5 year highs and the 7 year swaps made 4 year highs.
I would expect the rest of the week to calm down from here despite the calls for further capitulation. And the USDSGD 1.40 handle to remain the new comfort zone as we wait for election fever to take hold.