SGD in demand as investors cool towards USD
The yields on the 10-year Singapore Government Securities ended the month of May at 2.44%, near the low end of the month’s range of 2.4%, and almost 200 bps below 10-year US treasury yields of 4.42% (as at May 30). Declining SGS yields are indicative of ample liquidity.
As a case in point, CapitaLand Ascendas REIT’s placement was 4.1x subscribed. The REIT had planned to raise $500 million in a placement to partly fund two acquisitions, which together are likely to be just 1.4% accretive to DPU on a pro forma basis for FY2024. However, the capital raising showed that Singapore dollars and Singapore assets are in demand.
Meanwhile, in the US, investor appetite for risk appears to be moderating, suggesting the early signs of rally fatigue, says Barnabas Gan, group chief economist and head of market research, RHB Bank.
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The proprietary RHB Risk Sentiment Index, which typically leads the S&P 500 by approximately two weeks, encountered resistance at the 1.0 level and retreated, an indication that investors are backing away from risk assets.
“Additional evidence of weakening risk appetite is seen in the copper-gold ratio, a traditional indicator of the balance between risk and safe-haven demand, which has also trended lower in recent readings,” Gan says.
He attributes this to uncertainty around the Trump tariffs due to legal pushback in the US. A US federal appeals court temporarily stayed a ruling from the Court of International Trade that had the potential to invalidate some of Trump’s tariffs.
See also: STI set to creep towards 4,000 but US risk-free rate remains elevated
In the meantime, while Gan had forecast three Federal Funds Rate cuts this year, he is now leaning towards two rate cuts. The FOMC says it remains data-dependent but viewed risks of elevated inflation have increased since the March meeting.
“The minutes acknowledged that the possibility of a recession is now almost as likely as the baseline forecast. Market pricing for FFR swaps has remained stable, with expectations aligned around two rate cuts by year-end,” Gan adds.
The chart of the 10-year US treasury yield shows it is locked in a narrow range, but holding firmly above its 50-, 100- and 200-day moving averages at 4.4%, 4.33% and 4.24% respectively. Although 21-day RSI has retreated somewhat, the clear strength and upward direction of quarterly momentum is cause for concern. The level to watch out for is 4.4%, which is a support. If the yield is able to fall below this level, markets could rally further.
