Bonds

Here are the gems across the SGD bond space amidst falling yields

SGD benchmark rates have been falling. Despite lower yields, we see treasures across the SGD bond universe.

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  • Published on 17 Aug 2024

Here are the gems across the SGD bond space amidst falling yields | Open a FREE FSMOne account and manage all your investments conveniently in ONE place


Singapore benchmark rates have started to decline


After a steady climb since early 2024, Singapore benchmark rates have fallen after peaking in April. Benchmark rates across various tenors have dropped since the peak, with the 2-year, 5-year, and 10-year Singapore Overnight Rate Average Overnight Indexed Swap (“SORA-OIS”) falling by around 80 to 90bps to 2.54%, 2.42%, and 2.50% respectively (as of 15 August).

The movement in Singapore sovereign bond yields mirrored that of the benchmark rates, particularly the longer-tenor bonds. Since their peak in May, the 2-year, 5-year, and 10-year Singapore Government Securities (“SGS”) yields fell by around 65 to 75bps to 2.75%, 2.72%, and 2.80% respectively. Meanwhile, the shorter tenor 6-month and 1-year Singapore Treasury Bills (“SITB”) also experienced a drop in yield to around 3.34% and 3.29% respectively (as of 15 August). With short-term yields staying elevated and higher than their longer-term counterpart, the Singapore sovereign curve remains deeply inverted.

Singapore’s benchmark rates largely follow the trajectory of rates by major central banks, particularly the US, and are also influenced by foreign exchange fluctuations. As such, the recent drop in yields across Singapore sovereign bonds reflected the plunge in US treasury yields - fueled by a surge in Fed rate cut expectation following a series of lacklustre US labor market data and soft inflation reading. At the moment, markets have priced in four Fed rate cuts by end of the year, with the expectation of one to two cuts in September’s FOMC meeting. This was a far cry from last month’s expectation of two rate cuts by end-2024 and just one cut in September’s meeting.

Chart 1: Singapore benchmark rates have fallen in recent months


Chart 2: Longer-tenor SG sovereign bond yields have closely mirrored the trajectory of benchmark rates

 

Chart 3: SG sovereign curve remains deeply inverted 

 

Has this dimmed the appeal of SGD bonds?


Singapore T-bills shine amidst the equity market carnage


While the drop in Singapore benchmark rates has put pressure on yields of SGD sovereign bonds, we still favor the SITB which remain as a good option for risk-adverse investors. In light of the recent equity market carnage, SITB can provide good portfolio diversification and dampen volatility through its risk-free nature. Having a short tenor also allows SITB to act as a temporary safe harbor for investors to shelter their investments from the market gyrations. 

With an inverted Singapore sovereign curve, SITB continues to offer a higher yield over the longer-tenor SGS. For instance, a 12-month SITB would provide a 50bps yield pickup over a 10-year SGS, offering investors the chance to pocket higher yield without the excess price volatility from the additional duration. 

At a yield of around 3.3% (6M and 1Y SITB), SITB continues to offer decent yield opportunity when viewed across history and against other risk-free options of similar tenor. One such option is bank fixed deposits, which have seen rates decline as well. For comparison, major banks offer rates of between 2.8% to 3.25% for 12-month fixed deposits in July, across various minimum deposit amount (generally above SGD 10K) which is much larger than the minimum investment amount for SITB.

Treasures can be found across SGD corporate universe 


While credit spreads have tightened across the SGD corporate bonds since the start of 2024, yields remain decent on aggregate and are generally higher than the past decade. We believe SGD corporate bonds continue to offer good opportunities for investors looking to pocket higher yields than sovereign bonds. Below we highlighted some of our favourite offerings at the moment, categorised for various profiles of investors -  

For short-duration options, we like

Issues

Bond Issuer

Ask Price

Years to Maturity/ Next Call

Yield to Maturity/ Next Call (% p.a.)

STRTR 3.750% 29Oct2025 Corp (SGD)

The Straits Trading Company

99.10

1.20

4.53

STRTR 4.100% 04May2026 Corp (SGD)

The Straits Trading Company

99.45

1.71

4.44

OUECT 3.950% 02Jun2026 Corp (SGD)

OUE CT Treasury

100.20

1.79

3.83

DB 5.000% 05Sep2026 Corp (SGD)

Deutsche Bank

101.13

2.05/ 1.05

4.18/ 3.90

GUOLSP 3.290% 26Oct2026 Corp (SGD)

GLL IHT

98.40

2.19

4.06

GUOLSP 4.050% 04Jun2027 Corp (SGD)

GLL IHT

100.15

2.80

3.99

Sources: Bondsupermart, Bloomberg Finance L.P., iFAST Compilations.

Data as of 15 August 2024.


For mid to longer-duration options, we like

Issues

Bond Issuer

Ask Price

Years to Maturity/ Next Call

Yield to Maturity/ Next Call (% p.a.)

GUOLSP 4.400% 27Jul2028 Corp (SGD)

GLL IHT

101.40

3.95

4.01

STRTR 4.700% 24Jan2029 Corp (SGD)

The Straits Trading Company

100.95

4.46

4.46

BNP 4.750% 15Feb2034 Corp (SGD)

BNP Paribas SA

102.4

9.50/ 4.50

4.29/ 4.15

CMZB 6.500% 24Apr2034 Corp (SGD)

Commerzbank AG

106.75

9.69/ 4.44

5.21/ 4.79

Sources: Bondsupermart, Bloomberg Finance L.P., iFAST Compilations.

Data as of 15 August 2024.


For retail investors, we like the following Astrea bonds

Issues

Bond Issuer

Ask Price

Years to Maturity/ Next Call

Yield to Maturity/ Next Call (% p.a.)

ASTLC 3.000% 18Mar2031 Corp (SGD) - Class A-1 - Retail

Astrea VI

98.53

6.58/ 1.58

3.92/ 3.93

ASTLC 4.350% 19Jul2039 Corp (SGD) - Class A-1 - Retail

Astrea 8

102.42

14.92/ 4.92

4.13/ 3.81

Sources: Bondsupermart, Bloomberg Finance L.P., iFAST Compilations.

Data as of 15 August 2024.


For risk-adverse investors seeking higher yields than SGD sovereign bonds, we like
  • VRTVEN 3.300% 28Jul2028 Corp (SGD) which offers above 3.7% for a tenor of nearly four years. Vertex Ventures Holdings is a wholly-owned Temasek subsidiary and mainly invest in early-stage and growth-stage technology. The bond offers a yield pickup over the 2-year SGS (yield: 2.75%) and 5-year SGS (yield: 2.72%) as well as bonds of other Temasek owned/ linked issuers. Additionally, the slightly longer tenor allows investors to lock in higher yields for longer.

Issues

Bond Issuer

Ask Price

Years to Maturity/ Next Call

Yield to Maturity/ Next Call (% p.a.)

VRTVEN 3.300% 28Jul2028 Corp (SGD)

Vertex Venture Holdings

98.49

3.95

3.72

Sources: Bondsupermart, Bloomberg Finance L.P., iFAST Compilations.

Data as of 15 August 2024.


For investors with the risk appetite for higher yields, we think these are stable issuers and like the following bonds
  • OLAMSP 4.000% 24Feb2026 Corp (SGD), which is attractively priced with close to 1.5 years to maturity, and TMGSP 5.250% 13May2027 Corp (SGD), which offers close to 5% yield, with a longer tenor of close to three years. These names offer good compensation to investors for the additional credit risk (credit spread of around 150 - 220bps (z-spread)).

Issues

Bond Issuer

Ask Price

Years to Maturity/ Next Call

Yield to Maturity/ Next Call (% p.a.)

OLAMSP 4.000% 24Feb2026 Corp (SGD)

Olam International

99.00

1.52

4.69

TMGSP 5.250% 13May2027 Corp (SGD)

Thomson Medical Group

100.93

2.74

4.88

Sources: Bondsupermart, Bloomberg Finance L.P., iFAST Compilations.

Data as of 15 August 2024.


Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in STRTR 3.750% 29Oct2025 Corp (SGD), STRTR 4.100% 04May2026 Corp (SGD), OUECT 3.950% 02Jun2026 Corp (SGD), GUOLSP 3.290% 26Oct2026 Corp (SGD), BNP 4.750% 15Feb2034 Corp (SGD),  CMZB 6.500% 24Apr2034 Corp (SGD), and OLAMSP 4.000% 24Feb2026 Corp (SGD) while the analyst who produced this report hold a NIL position in the abovementioned securities.


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