Substantial rate cuts are unlikely without a US recession

01

Safe haven status

Singapore has enjoyed a steady AAA rating for over 20 years and is one of the 11 AAA-rated countries in the world. Robust governance, strong credit fundamentals, a stable political environment are key reasons upholding this rating. The Singapore dollar (SGD) is also perceived to be a safe haven currency with lower volatility. Singapore government and quasi-government bonds are popular amongst investors who prefer high quality assets in a stable currency.
Our take: Due to Singapore’s robust macroeconomic fundamentals, the SGD has generally been on an appreciating path over the long term, making it an attractive option for investors.

Substantial rate cuts are unlikely without a US recession

02

Lock in attractive yields

Singapore bond yields are now at multi-year highs. As the global interest rate hiking cycle has peaked in 2023, the potential for rates to decline from here on is high. It is therefore a good time to lock in the current higher bond yields in high quality issuers such as Singapore dollar government bonds and investment grade corporate bonds. Investors also stand to benefit from capital appreciation once the global easing cycle kicks in.
Our take: Singapore T-bills’ yields are likely to remain steady in the short run, but they are expected to decline once the US Fed begins cutting rates as SGD rates mirror USD rates.

Substantial rate cuts are unlikely without a US recession

03

An effective diversifier

Singapore bonds have been relatively stable during periods of heightened market volatility; they have held up better than Singapore equities during the 2008-09 Global Financial Crisis, the 2013 taper tantrum as well as during the onset of the Covid-19 pandemic. Given this resilient quality it can play a key role in stabilising investors’ portfolios, while providing an attractive level of income against the current backdrop of elevated inflationary forces and slowing growth risks.
Our take: Over the period the US Fed started its tightening cycle (March 2022-Dec 2023), Singapore bonds1 rose by 2.8% while the world government bond2 index slumped 4.3%.

Substantial rate cuts are unlikely without a US recession

04

Stable corporate fundamentals

The balance sheets of Singapore corporates and banks remain largely sound relative to other countries; their financial gearing is much lower at 14% versus the 24% of US corporates3, in part due to the significant deleveraging prior to and during the 2008 Global Financial Crisis. Corporate earnings should regain strength as the country’s growth recovery remains on track. The default risk of Singapore corporates is expected to be low.
Our take: Singapore’s GDP is expected to expand by about 1% to 3% in 2024, according to forecasts by the Ministry of Trade and Industry. In 2023, the economy grew by 1.2%.

Substantial rate cuts are unlikely without a US recession

05

Good demand-supply dynamics

The Singapore bond market has also grown steadily over the years. Being one of the most advanced in the Asian region, it is becoming a funding market of choice for international issuers. Institutional demand for Singapore dollar bonds is also resilient due to the growing assets managed by Singapore insurance companies.
Our take: Based on new issuances to date, 2024 looks set to be a better year than the past 2 years. On the demand side, we expect healthy investors’ buying amid the backdrop of a global rate-cutting cycle.

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Sources:
1 As per the Markit ALBI Index (SGD)
2 FTSE World Govt Bond Index (SGD)
3Source: Bloomberg, MSCI, debt to total asset ratios proxied by respective regional and country MSCI indices. Data retrieved in December 2023.

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