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Hawkish Singapore policy, cooling inflation a tailwind for bonds

Bloomberg
Bloomberg • 2 min read
Hawkish Singapore policy, cooling inflation a tailwind for bonds
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Singapore's sovereign bonds are drawing in buyers after last month’s selloff as the nation’s tight monetary policy tames inflation.

The yield on the island nation’s 10-year note has fallen to around 3.28% from a six-month high of 3.47% touched late last month. Despite the drop, it remains at a level that was hit only about 10% of the time in the past three years, suggesting room for further declines.

Buyers are also encouraged by a less hawkish sounding Federal Reserve and a near two-year low local core inflation as a result of the Monetary Authority of Singapore’s tight policy.

“As the market took away the point that the hurdle for Fed rate hikes is set high, investors are dipping in again,” said Eugene Leow, a Singapore-based senior rates strategist at DBS Group Holdings. “There was a lot of duration fear and this extended into Singapore Government Securities over the past few weeks.”

Singapore Bonds Outperform US' in Hawkish Fed Scenarios

See also: Transition bonds: In the shadows of sustainable finance

The rising optimism surrounding Singapore’s bonds is also evident in debt auctions. The 10-year SGS auction on April 26 garnered a bid-to-cover of 1.99 times, the highest for this tenor since the July 2022 sale. 

Singaporean bonds have handed a return of 1.5% to dollar-based investors so far this month, according to a Bloomberg index. This is the highest in emerging Asia after South Korea, Indonesia and the Philippines. It comes after Singapore’s notes posted a 7% loss in the first four months of the year, to be one of the region’s laggards.

The MAS has kept its policy unchanged in four straight decisions through April, after tightening in the five previous meetings. A restrictive policy means the Singapore dollar is appreciating against a basket of currencies of its main trading partners, thereby helping ease inflationary pressures and bond yields.

Singapore’s core inflation gauge eased to 3.1% year-on-year in March on falling food prices, after hitting a seven-month high of 3.6% in February.

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