Singapore government bonds are extending their outperformance over US Treasuries to levels not seen since 2007, as a drop in local interbank borrowing costs points to a surge in haven demand.
By tightening monetary policy this week, the Monetary Authority of Singapore has helped attract greater global liquidity, allowing local securities to defy oil-driven inflation and also the lure of higher US yields.
The divergence underscores a growing decoupling, with Singapore’s two-year yields falling below their US counterparts by as much as 243 basis points in March.
“A firmer SGD policy stance tends to anchor confidence in SGD assets and reinforces the relative appeal of local bonds,” said Wei Ming Cheong, a portfolio manager at Eastspring Investments, adding that they are also supported by ample liquidity conditions and haven flows.
The Singapore Overnight Rate Average has fallen to a near four-year low, underscoring the rising liquidity in the city-state.
MAS, which uses the exchange rate as its main policy tool rather than interest rates, said Tuesday it would increase the slope of its policy band. A stronger Singapore dollar would potentially attract more capital inflows.
In comparison, shorter-maturity US Treasuries have been weighed down by oil-fanned inflation concerns. US overnight indexed swaps are pricing a 40% chance of a 25-basis-point rate cut by the end of the year, down from expectations of more than two quarter-point rate cuts before the outbreak of the US-Iran war.
The difference in bond yields in Singapore and the US highlights a stark divergence in global sentiment. While US Treasuries are being bruised by a higher-for-longer interest rate outlook, Singapore’s assets have seen haven demand as a result of the Middle East conflict.
“Looking ahead, as long as MAS maintains its current stance and global growth risks persist, Singapore government bonds are likely to remain resilient and continue to outperform US Treasuries,” said Shier Lee Lim, lead currency and macro strategist at Convera Singapore.
MAS’s cautious approach and downside risks to Singapore’s growth outlook have provided a stronger anchor for Singapore bonds, she said.
Written by: Marcus Wong @Bloomberg
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