Asiadollar credit spreads exhibited disparity in December, with Bloomberg Asia USD Investment Grade (IG) spreads widening by 4 basis points (bps) month-on-month to 78 bps, while Bloomberg Asia USD High Yield (HY) spread tightened 41 bps m-o-m to 417 bps as at time of writing.
The spreads widening could be partially due to the US Federal Reserve Meeting (FOMC) in December, in which Fed Chair Jerome Powell indicated a slower pace of rate cuts in 2025 after issuing a 25 bps rate cut, with investors continuing the search for all in yields while ignoring heightened inflation worries. The US Federal Reserve revised the 2025 personal consumption expenditures (PCE) inflation forecast to 2.5% from 2.1% and the 2025 core PCE inflation forecast to 2.5% from 2.2%.
That said, 2024 was a decent year for Asiadollar credit with total returns of 3.7% and 15.1% respectively for IG and HY, respectively. Meanwhile, spreads tightened by 27 bps to 78 bps for IG and 364 bps to 417 bps for HY y-o-y, respectively.
Slowing down in depth and breadth after a busy year: December saw a noticeable slowdown in Asiadollar bond issuance (excluding Japan) of US$4.4 billion ($6.01 billion) as of Dec 31, 2024, against around US$15 billion in November per Bloomberg data. Overall, for 2024, Asiadollar bond issuance (excluding Japan) was around US$185 billion, according to Bloomberg League tables, up around 40% y-o-y.
Primary market looking for action: The SGD primary market’s overall issuance activity was very quiet in December, with an issuance level of only $492 million from six issuers. This followed November, which had $2.9 billion across nine issuances. Overall, for 2024, SGD primary market issuance was around $31.2 billion, according to Bloomberg League tables, up 57% y-o-y.
Stronger m-o-m returns driven by higher yields on a structural and fundamental basis: The SGD credit universe returned +0.17% m-o-m despite the rise in yields as spreads tightened within the SGD Credit Universe.
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The only weak performers were the longer tenors. Non-financial corporate perpetuals performed best by tenor and structure, while crossover credits were the strongest by issuer profile rating in December.
SGD exceptionalism in recent times? Amid strong credit market performance driven by lower interest rates and tighter spreads, the SGD credit market returned +6.6% in 2024, according to our tracker. In general, stronger performances were delivered by subordinated papers, long-term papers and higher yielding credits. At the same time, it was a buoyant year for the SGD primary credit market, with 2024 issuance surpassing full-year issuances in recent years. Factors favouring issuances include:
Tight credit spreads: Favourable environment to issue SGD credit due to tight credit spreads even with interest rates remaining high relative to pre-pandemic and pandemic years.
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Demand for SGD credits: Order books were generally decent despite tight spreads, indicating healthy market interest.
Relative stability of interest rates: Although yields in the Asiadollar markets have fluctuated, their impact on the SGD market has been limited, contributing to a stable issuance landscape.
A clean record and new entrants: The SGD credit market did not have any defaults or losses in 2024, maintaining a strong performance since the last significant loss of $750 million due to the writedown of Credit Suisse Group’s $750 million AT1 (CS 5.625% Perp) in March 2023. Thus far, aside from the oil and gas default wave from 2016 to 2018 and other isolated idiosyncratic developments, the SGD credit market has maintained low levels of defaults. In 2024, the SGD credit market welcomed nine issuers, including the Singapore Exchange (SGX) and iFast Corp, which we featured in our 2H2024 Credit Outlook published on June 28 2024.
1H2025 outlook – neutral amid tight spreads while yields remain high:
We expect SGD credit spreads will remain tight relative to historical levels, though some mild widening may occur, given the current tightness.
Demand for credit has been supported by expectations of interest rate cuts. We think credit may remain in demand as interest rates in 2025 are expected to be flat or lower than in 2024.
Meanwhile, OCBC Economists project modest GDP growth for Singapore’s key trading partners. However, ongoing geopolitical uncertainties, particularly in Israel-Iran, Russia-Ukraine and US-China relations, could lead to episodic widening of credit spreads.
If credit spreads remain at historic tight levels, issuers may capitalise on this by issuing more. Credit spreads can widen should supply exceed demand, noting that the balance of demand and supply for credit likely normalised following near-record issuance in 2024.
Chin Meng Tee, Andrew Wong, Ezien Hoo and Wong Hong Wei are credit analysts with OCBC Bank
