Yields on Singapore’s two-year government notes have risen by 16 basis points in March, the smallest increase in Southeast Asia, according to data compiled by Bloomberg. Similar-dated securities in Indonesia and the Philippines have seen yields surge by about five times more on bets their central banks will turn hawkish as the Iran war-driven oil shock adds to inflation risks.
Pressure is also building on the Monetary Authority of Singapore, which unlike other central banks uses the currency to manage policy, with economists predicting a tightening next month. Wei Ming Cheong, a portfolio manager at Eastspring Investments, said the move will likely reinforce the outperformance of local bonds.
“Any tightening will result in a stronger SGD, potentially attracting increased capital inflows,” he said. “Greater capital inflows increase system liquidity, which depresses short-end rates and steepens the yield curve.”
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A decision to tighten policy would mark the first such move by the MAS since October 2022, and also the first across Southeast Asia in the current cycle.
Steeper curve
Singapore’s dollar is among the few Asian currencies that have advanced against the US dollar this year, trailing only the Malaysian ringgit and the Chinese yuan. While the cost of borrowing in the interbank market has risen in March to 1.16%, it is still below the one-year average of 1.44%.
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In comparison, Indonesia’s benchmark money-market rate last week rose to the highest since August, while Malaysia’s three-month interbank rate is at the highest since July — signalling relatively less robust liquidity conditions.
While ample liquidity has helped anchor Singapore’s short-term yields, longer-dated government bonds appear more vulnerable to the global reflation trade.
The spread between the five- and 10-year yields widened to 43 basis points last week, the highest since November 2021. The gap between two- and 10-year yields is around 66 basis points — one standard deviation above a five-year average of about 26 basis points.
“The overall bias is still for a steeper curve” as Singapore’s domestic interbank rate is supported by haven flows and policymakers’ resolve to keep financial conditions stable, Citigroup Inc strategists including Rohit Garg wrote in a recent note.
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