SGS viewpoint

Prepared by Treasury Research & Strategy
SGS REVIEW & STRATEGY
January 2015
Your monthly guide on trend and outlook for Singapore government securities
Fundamental Highlights
Global growth forecast downgrades have begun in Jan.
The World Bank has pared 2015 growth from 3.4% to 3%,
highlighting significant and downside risks to the global
recovery, especially arising from financial volatility spike,
intensifying geopolitical tensions and prolonged stagnation in Europe or Japan. The IMF followed suit by paring
0.3% points to 3.5% in 2015 and 3.7% in 2016, with IMF
MD Lagarde reiterating that lower oil prices and US
growth are not a cure for deep-seated weaknesses elsewhere. The US remains the sole bright spot, but was not
sufficient to offset the less sanguine outlook for the Eurozone, Japan, China, Russia, EM and commodity exporters. Heightened anticipation of an ECB bond purchase
program had recently helped to drive global government
bond yields lower. Note short-dated government bonds
yields have turned negative for Japan and many European countries. SNB also unexpectedly lifted its franc cap to
the Euro, prompting upheaval in the currency markets.
BOC also unexpectedly cut rates by 25bps to 0.75%, citing the oil shock. Given that macro-economic uncertainties and central bank policy divergences are likely to persist in 2015, expect market volatility to remain elevated,
with the flattening bias in bond yield curves also intact.
The US Treasury bonds rallied in
anticipation of ECB’s QE program
S’pore’s SGS bond market also saw a nice rally
SGS Review and Outlook
SGS bonds rallied on soft growth and fading inflation.
The 2015 growth outlook for the Singapore economy has not
deviated too significantly from the 2.8% pace chalked up last
year. Our forecast is for GDP growth of 2-3%, accompanied
by benign inflation of 1% (headline) and 2.1% (core). With
the FY15 Budget due on 23 Feb, there is some speculation
that the productivity targets (currently 2-3% pa) may be
tweaked or extended, and businesses have called for restraint on any further tightening on the foreign manpower
front, especially for foreign worker levy and/or quotas. Further down the road, market speculation is revolving around
the possible unwinding of some temporary property
measures, and even elections (only due by Jan 2017).
Domestic inflation continued to subside with the cooling in
domestic asset prices and the plunge in crude oil prices.
Headline CPI dipped into negative territory at -0.3% in Nov
for the first time since Dec 2009, while core inflation also
eased to 1.5% (low since Jan 2013). This benign inflationary
environment has also aided the rally in the SGS bond market. In fact, the rally in SGS yields outperformed that of the
US Treasury bond market over the past month, with the
longer-dated SGS yields falling by up to 50bps versus 38bps
for its US counterparts. Nevertheless, the 10-year UST yield
is now trading some 5-10bps below that of the 10-year SGS
bond, which was last and briefly seen in Dec 2008 during the
Global Financial Crisis. This anomaly may normalize ahead
of the 30-year SGS re-opening that is due in Feb. Before
then, there is a $3bn re-opening of the 2-year SGS bond for
auction on 28 Jan.
OCBC Bank
For research enquiries, please email
Lingssselena@ocbc.com.sg
Group Treasury
Treasury Research & Strategy
Selena Ling
(65) 6530 4887
Fixed Income Sales
Lee Siu Gim
(65) 6349 1810
SGS Trading
Pan Tan
(65)
(65) 6530 4723
Prepared by Treasury Research & Strategy
January 2015
SGS REVIEW & STRATEGY
Your monthly guide on trend and outlook for Singapore government securities
Indicative SGS prices as at 22 Jan 2015
Issue
Maturity
Coupon
Bid Price
Ask Price
N509100N
N708100S
Oct-14
01-Jul-15
1.38%
2.875%
100.27
101.00
100.31
101.04
Bid Yield
0.30%
(%)
Ask Yield
0.14%
(%)
0.59
0.50
N511100W
01-Apr-16
1.125%
100.61
100.65
0.61
0.57
NY01100F
01-Sep-16
3.750%
104.98
105.08
0.63
0.57
N710100Z
01-Apr-17
2.375%
103.65
103.75
0.69
0.65
N513100T
01-Apr-18
0.500%
98.80
98.90
0.88
0.85
NY03100A
01-Sep-18
4.000%
110.36
110.46
1.06
1.04
NX09100W
01-Jun-19
2.500%
105.30
105.40
1.25
1.22
N514100H
01-Oct-19
1.625%
101.18
101.38
1.36
1.32
NY05100N
01-Sep-20
3.250%
109.06
109.26
1.56
1.52
NX11100X
01-Jun-21
2.250%
103.35
103.55
1.69
1.66
NY07100X
01-Sep-22
3.125%
109.40
109.60
1.80
1.77
NX13100H
01-Jul-23
2.750%
106.70
106.90
1.89
1.86
NY09100H
01-Sep-24
3.000%
109.50
109.70
1.91
1.89
NZ07100S
01-Mar-27
3.500%
114.25
114.55
2.16
2.13
NY14100E
01-Jul-29
2.875%
107.25
107.55
2.28
2.26
NZ10100F
01-Sep-30
2.875%
107.30
107.70
2.31
2.29
NZ13100V
01-Sep-33
3.375%
115.00
115.40
2.37
2.35
Co.Reg.no.:193200032W
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