Hedged Singapore government bonds are the most expensive versus US peers in at least four years as investors seek safe-haven alternatives to American assets.
Investors have largely shrugged off the negative yield differential, still favouring the city-state’s AAA credit and robust onshore liquidity amid rising concerns over fiscal sustainability in the US. Using cross-currency swaps, a dollar-hedged 10-year Singapore dollar bond will yield around 4.15%, nearly 10 basis points lower than the 10-year US Treasury. This discount was as much as 20 basis points in mid-July — the widest in data back to May 2021.
“Singapore dollar-denominated assets have benefited from de-dollarisation flows over the past few months” and will continue to do so, said Peerampa Janjumratsang, a portfolio manager for Asia fixed income at M&G Investments in Singapore, even as the city-state’s bonds hedged back to dollars currently look “expensive compared to Treasuries.”
Investors are flocking to Singapore’s assets as concerns increase about deficits in other developed economies, including Japan and the UK. The US in particular is a concern, given its deficit and the tariff policies it has been pursuing — prompting a “sell America” theme in recent months that has investors scrambling for alternatives.
“Singapore government securities remain attractive to investors due to its AAA rating and for diversification purposes, even as the pick-up is slightly lower than US Treasuries,” said Frances Cheung, head of FX & rates strategy at Oversea-Chinese Banking Corp.
See also: Singdollar perpetuals: A good time for issuers. Is it also a good time for investors?
Nominal 10-year Singapore government yields have declined by over 90 basis points this year, in comparison to around 30 basis points for 10-year Treasury yields.
There may be more room for hedged Singapore bond returns to improve. The pick-up from hedging has been increasing lately, as the greenback-Singapore dollar 10-year cross currency swaps have fallen to minus 36 basis points, the lowest level since April.
“A grind lower in 5- and 10-year basis is already taking place and we suspect that this move has further to run, spurred on by a pickup in SGD corporate issuances, with some of the proceeds likely to be swapped for US dollars,” said Eugene Leow, a fixed-income strategist at DBS Bank Ltd.
