SGD Weekly : THE HAZE JINX
The haze has been a jinx for Singapore and Malaysia or has it gone to the head ? Hamilton suffered a freak accident to miss out winning 8 Grand Prix in a row. Sibor broke new records last week despite SOR fixings dropping like a ton of bricks after breaking its 6 year highs along with USDSGD earlier this month before the SG elections.
Some say Sibor is playing catch up to SOR while others claim it is the IPO effect of the Singapore Savings Bonds that will drain S$1.2 bio out of the system. I think it is because of the USDSGD like I said yesterday, which many are now blaming also on the MYR.
USDSGD most undervalued in 9 years according to the Big Mac Index, crapping down in a steep decline.
The higher Sibor led to the SGD bond curve flattening on the week as opposed to the USD curve which steepened after last week’s FOMC and the no hike (or rather delayed hike in 2015) decision.
US Libor
1M 0.1958
3M 0.3192
6M 0.5264
ECONOMIC DATA
AUG Non oil Domestic Exports -4.6% MoM, expected +0.2%
AUG Electronic Exports -2.7% YoY, expected +1.9%
AUG Non oil Domestic Exports -8.4%, expected -3.5%
I still see value in the government bonds and swap curve as well as the USDSGD which have all over reacted into the elections and as we head into MAS’s Monetary Policy meeting next month, it would not pay to be overly bearish and expect another round of weakening when the Fed can do that for us with their promised hike to come. When 5Y SGS is 0.7% over 5Y UST, I think we cannot ask for much more especially when we have increased media coverage of the Sibor situation which is bad publicity, just like the haze !
A new 2Y SGS auction coming on 28 Sept and no maturing amount, that would probably keep the prices of the 2-5Y papers soft for some buying opportunity as this would be the final auction for the year with only 1 other mini bond auction next month.
The USDSGD still looks capped and probably a good sell at current levels to target 1.39.
With the Golden Week holiday starting next week and China’s President Xi to visit the US today, markets should be well behaved into month and the quarter’s end. Sentiments appear to be turning as rationality returns after the EM rout and the STI is holding in a nice consolidation pattern that should see some demand return.
Going ahead, I would expect government bonds to outperform corporates, seeing that most corporate bonds have outperformed the govis this year although credit quality has not improved much, globally. https://tradehaven.net/the-bright-side-of-the-singapore-bond-market-our-amazing-corporate-bonds/
Good luck !