“The yield on 30-year Singapore Government Securities could see a further discount relative to 30-year Treasuries if US fiscal worries kick up another notch, which might not be imminent,” said Eugene Leow, a fixed-income strategist at DBS Bank in Singapore.
“The 30-year Singapore bond supply is constrained in the short-term ahead of the auction in April,” he said.
US 30-year yields surged to 5% in the run-up to Trump’s inauguration on concern that his high-tariff, low-tax policies will drive up inflation and come in the way of further Federal Reserve interest rate cuts. While yields eased on day one of his presidency amid delays in imposing tariffs, analysts have urged caution over the sustainability of these moves.
Meanwhile, the Monetary Authority of Singapore is expected to ease its policy on Friday, according to a majority of economists surveyed by Bloomberg. That would involve MAS pushing down the value of the Singapore dollar, which in turn puts upward pressure on interest rates as traders demand higher returns for investing in a weaker currency.
The city state’s December core inflation grew 1.8% from a year earlier, the slowest pace since November 2021, supporting the case for more policy easing.
While this may reduce the yield spread between shorter-dated Singapore and US bonds, the longer-end of their yield curves would be driven more by the outlook on bond supply.
Supply drought
So far low debt supply in Singapore has driven up demand at auctions and kept yields anchored. The last 30-year bond auction in September 2023 was for $1.5 billion and had a bid to cover ratio of 2.20 times, the highest since the June 2020 sale. The next auction in that tenor is on April 28.
Although Singapore has an elevated government debt-to-GDP ratio — nearly 180% in 2023, according to data from the International Monetary Fund — this does not translate to fiscal concern. That’s because proceeds from government borrowings are largely invested as part of the nation’s reserves, according to the Ministry of Finance.
“We could potentially see the long-dated spread remaining wide” between Singapore and US bonds, said Kaushik Rudra, global head, fixed income research and Jonathan Koh, currency analyst at Standard Chartered Plc.
“There will be ample supply in Treasuries, while in Singapore it will remain scarce,” they added.
