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MAS's new infrastructure bonds expected to garner 'decent interest': DBS

Felicia Tan
Felicia Tan • 3 min read
MAS's new infrastructure bonds expected to garner 'decent interest': DBS
DBS's Eugene Leow thinks that the auction size for the 30-year SGS (Infrastructure) bonds would be close to $2 billion.
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The Monetary Authority of Singapore’s (MAS) inaugural Singapore Government Securities or SGS (Infrastructure) bonds should “garner decent investor interest,” says DBS Group Research analyst Eugene Leow on Sept 15 in an economics report.

The 30-year bonds will be created under the proposed Significant Infrastructure Government Loan Act (Singa).

The bonds were first brought up by the Ministry of Finance (MOF) in April shortly after Deputy Prime Minister Heng Swee Keat tabled a proposed law in Parliament. The proposed law will enable the government to borrow money to spend on major national infrastructure projects.

See also: SINGA bonds a 'long term positive' for SGD bond market: Maybank KE

This will be the only issue of the SGS (Infrastructure) bonds for 2021 and the last long-dated SGS for the year.

The size announcement is scheduled for Sept 21. Then, an auction will be held on Sept 28. The issuance will be held on Oct 1.

“In the current environment, there is a scarcity of AAA-rated government bonds. [The] current 30-year SGS yield of 1.89% ranks as one of the highest in the world,” writes Leow.

To him, concerns about the lack of demand for duration proved to be unfounded.

During the 20-year auction, which was to be followed quickly by the upcoming SGS (Infrastructure) issuance, the response was firm with bid-to-cover of 2.24 and a cut-off yield of 1.86%.

The positive response came even though market participants were initially worried that the auction, as well as the issuance of the 30-year bond would be too much for the market to take in.

On this, Leow thinks that the auction size for the 30-year SGS (Infrastructure) bonds would be close to $2 billion to allow for sufficient liquidity.

“Reopening is also possible to build up liquidity for the bonds,” he says.

“The gist is that Singapore faces a hump in development expenditure spending. With benefits from these projects likely to be spread over decades, it makes sense to spread liabilities over a similar period. Safeguards have also been put in place to ensure that Singapore’s AAA-rating does not get threatened,” writes Leow.

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He adds that there should be no difference between the SGS (Market Development) and SGS (Infrastructure) in the eyes of an investor.

“Both have the same credit, regulatory, underwriting, market support and tax perspectives. Both SGS types should be seen from the same curve.”

Furthermore, Leow notes that the SGS (Infrastructure) bonds are likely to have a longer tenor, with a 40- or 50-year bond likely in the future, depending on market conditions.

Photo: Bloomberg

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