Summary

 

Investors’ preference for high quality assets continues to benefit SGD bonds.

Last month, the US Fed paused on rate hikes but reiterated a hawkish stance and signalled higher for longer rates as inflation, while improved, remains too high for the central bank to declare victory. Coupled with US economic resilience and higher than expected debt issuances, the 10-year US Treasury yield sold off to hit a 16-year high before sliding a bit. The renewed hawkish tone has again filtered through to SGD bonds with 10-year SGS yield hitting a year high of 3.47% and yields on latest six-month T-bills crossed the 4% mark, the first time since January.

Singapore government bonds continue to offer relatively attractive yields among the highest-rated AAA-rated sovereigns. Meanwhile the SGD corporate debt market has seen lower new issuance volume this year, providing a supportive technical backdrop besides absolute yields that are trading at an attractive multi-year high. Investors’ preference for high quality assets in a stable currency continues to benefit SGD bonds; the Markit iBoxx ALBI Singapore Total Return Index has gained 0.41% year-to-date, up from -9.9% over the same period last year.

Eastspring’s Fixed Income team believes investor demand will remain healthy for SGD bonds, especially in the high-quality issuers’ segment. The team likes SGD credits for their relatively low volatility and stable credit fundamentals. Bond investors also stand to benefit from capital appreciation once the global easing cycle kicks in. As such, it is an opportune time to lock in the current higher bond yields in high quality issuers such as SGD government bonds and investment grade SGD corporate bonds.

The SGD bond market, which is one of the most advanced in the Asian region, can play a key role in stabilising investors’ portfolios, while providing an attractive level of income against a backdrop of elevated inflationary forces and slowing growth risks.

SGD bond yields are at multi-year highs

SGD bond yields are at multi-year highs

Source: Eastspring Investments, Markit iBoxx, Blackrock Aladdin, as at 30 September 2023. The Yield for the Markit iBoxx ALBI Singapore Index refers to its yield-to-maturity (YTM). The YTM calculation is a weighted sum of underlying bond yields in the index, which are priced according to sources from Blackrock Aladdin assuming that all coupon payments are reinvested at the same rate as the bond's current yield and takes into account the bond's current market price, par value, coupon interest rate and time to maturity.

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Sources:
1 Year to date as at 30 Sep 2023

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