Flash Notes

Our thoughts

    The upcoming 2Y auction size does not present much difficulty for the market to absorb. A net auction amount of SGD 2.8bio (less MAS retained amount) compares well against maturing proceeds of SGD 2.9bio coming from the 01 February 2015 bond. Besides the rollover demand, recent regulation change effective this year on SGD liquidity coverage ratio (LCR) has also increased the marginal demand for High Quality Liquid Assets (HQLA). The aforementioned combined ought to be sufficient to ensure that auction tailing is minimized.

    As the aphorism goes, size isn’t everything, therefore how does the April 2017 bond rate in terms of value?

    From a historical perspective, recent yields on the 2Y SGS benchmark bond has been holding comfortably above the average yields since the start of US Fed’s zero interest rate policy (ZIRP). Recent external environment has been very much focused on monetary easing thus causing more doubts over the Fed’s willingness to raise rates, which has seen futures pricing of the normalization date pushed back. There remains enough uncertainty such that current 2Y SGS yield levels are not considered unpalatably low.