SGD Monthly Snapshot : Did Somebody Die In June ?

Economic Data In May

2 June
May PMI 49.8 vs 49.7 expected
May Electronics Sector Index 49.1 vs 49.5 previous

3 June
Nikkei Singapore PMI 50.1 vs 49.4 previous

7 June
May Foreign Reserves $247.13 bio vs $250.35 bio previous

15 June
Apr Retail Sales +3.8% YoY vs +6.1% expected
Apr Retail Sales +1.1% MoM vs +2.2% expected
Apr Retail Sales ex Auto -3% YoY vs -2.3% expected

17 June
May Non-oil Domestic Exports +11.6% YoY vs -1.6% expected
May Non-oil Domestic Exports +16.8% MoM vs +2% expected
May Electronics Exports -6% YoY vs -1.4% expected

23 June
May CPI -0.7% MoM vs 0% expected
May CPI -1.6% YoY vs -0.8% expected
May Core CPI +1.0% YoY vs +1.1% expected

24 June
May Industrial Production -0.4% MoM vs -0.9% expected

May Industrial Production +0.9% YoY vs +1.0% expected


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Puzzle solved for May.

“It is somewhat puzzling that with nearly $2 billion worth of SGD to be swapped into USD, mostly in the 5 year sector, that interest rates (and basis swaps) managed to buck the trend and moved higher for the month, with the 5Y rate outperforming most of the curve, rising with the 2Y and flattening against the 10Y.”

Swaps out-performed bonds for the month, falling 0.36-0.47% vs just 0.06-0.38% for the bonds, as the USDSGD gained 2.3% and the 6M SOR fixing came off by 0.3% and we saw 10Y bond yields drop to a 17 month low. A smaller than expected size for the 2Y bond re-opening auction ($1.8 BIO) did not help short end bonds much which is what we should rationally expect after a bumper May of record breaking issuance.

If not for the SGD NEER’s strength, bonds could have under-performed much more and we need to look no further than Malaysia for the spurt in currency strength with the MYR gaining 3.68% against the USD while the IDR rallied 4%, after a minor skirmish post Brexit.

The lower yields gave dividend blue chip stocks a major boost for the month with high grade S-reits rallying hard (CCT, CMT, Areit) as well as bellwether names like Singtel, Capitaland, C&C, Starhub, just to name a few. And the confidence in the lower rates is bolstered by the sustained lower SOR fixings compared to SIBOR for the entire month even as the 1 and 3 month SIBOR broke their 16 month lows.

The 12-16 month low in rates along with the bumper May of bond issuance has rightfully led to investor caution with much profit taking in the bonds and casual investor surveys indicate a high proportion of allocation in cash into the mid year.

To put things into perspective, Singapore has become a high yield market without Singaporeans noticing. With only Australian yields higher in the Aaa universe (and Australian yields did break historic lows in June), we should expect that interest rates in Singapore to be trapped in the new lower range channel in the medium term, dictated by currency moves.

SGD Monthly Snapshot : Did Somebody Die In June ?


The chart of the 5Y SGD irs against the USDSGD above suggests that rates have run ahead of the currency, probably due to the weight of that $2 bio from May that was due to be swapped out of SGD into USD.

It is likely we should take a breather into July as the FOMC beckons and the SGS market prepares for their last long dated bond auction of the year, a re-opening of the 20Y SGS, with only a potential wild card mini-auction in October, noting that the protective central bank has not had a mini auction since May last year.

With USDSGD closing at the 1.34 level monthly since Feb this year, barring last month’s 1.37 closing, 1.33 appears solidly supported in spite of the SGD NEER strength.

Thus, a mild July retracement should be in order, for the rates and SGS and for those corporate bonds that been sidelined in June’s price action, perhaps some demand would re-surface because nobody died in June.

Good luck with the markets.