Singapore Rates Weekly : Bucking The Trend

Singapore always has to be different.

Global rates down, Singapore rates up (for the year).

Currencies weaken, Singapore weakens bit more.

Bonds rally, Singapore government bonds sell off.

Therefore, would anyone be surprised that when US swap spreads go negative, Singapore goes in reverse ?

No.

Government bonds rallied on the week against the higher IRS and stat-board credit spreads have tightened beyond the limits of imagination as HDB trades under swaps giving bond investors a massive windfall.

Singapore is special.

And there has no rush for the inaugural Singapore Savings Bond issue this month with only S$ 413 million subscribed on a S$ 1.2 billion issue.

Singaporeans are smart. There is no money to be made there ?

The Singapore govt bond curve displayed an unusual flattening centred on the 5-7Y because that is where the biggest differential is with the US curve and it would make sense as we said last week.

“…. 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 !” https://tradehaven.net/sgd-weekly-the-haze-jinx/

 

 

With the SGD trading outside the NEER, it does look like the USDSGD’s fate is sealed as it bursts to a 6 year high of 1.4328 on 2 Oct and into the MAS’s MPS to be announced sometime between 7-14 Oct, possibly after 11 Oct when the IMF meetings in Peru concludes and the economic forecasts for 2016 are presented.

 

The street expectations for the MPS is very skewed with only a minority expecting no change to anything.

Band widening is the main call (>50%), but there is a camp championing a reduction in the appreciation slope and the radical camp for a second re-centreing which has never happened twice in a single year before.

The uncertainty is ever more heightened as the STI Index closed the week down and 5Y basis swaps close in on their 3 year highs which possibly indicates active swapping of SGD liabilities into USD, or rather, USD demand much like the panic in Malaysia as their currency weakened to 18 year lows again this week. It is unsurprising given that this is the longest period in history that SIBOR and SOR have held above US Libor and the gap of 0.81% in the 3M (Sibor – Libor) spread is showing no signs of closing out.

 

The weakening of basis swaps is not a negative sign as the short end 1-2Y basis has not reacted similarly unlike the case of Malaysia which is caused by currency distress.

With the US treasury move on Friday after the dismal Non Farm Payrolls, Singapore is in for an exciting week ahead going into the MAS MPS and China returning from their Golden Week holidays.

Should the market buy into the no-hike story and the possibility of QE4, there will be some respite for EM, Singapore included and the rally will go on which hopefully will take Sibor lower even if the MAS does widen the band or flatten the slope of appreciation, risking USDSGD to 1.45.

Good luck.