SGD and SGS in global stage; some considerations

Varieties of cyclical, geopolitical, and structural developments have exacerbated USD volatility lately, underscoring the importance of currency risk management. We make the case for SGD and SGS.
Group Research, Taimur Baig, Chang Wei Liang, Eugene Leow, Duncan Tan04 Aug 2022
  • Our analysis finds attractive risk-reward from SGD assets
  • Wider collateral eligibility of SGD cash and bonds for market purposes is a positive development
  • There are fewer geopolitical considerations compared to the USD
  • The long duration green SGD bond issuance pipeline is a major potential draw
  • Singapore’s high credit rating and a favourable issuance pipeline make a strong case for investors
Photo credit: Unsplash Photo


Varieties of cyclical, geopolitical, and structural developments have exacerbated USD volatility lately. There has been no shortage of crises in the US and beyond, causing periods of risk aversion that invariably leads to flight to USD safety. Strong dollar phases are not permanent by any means; protracted periods of weakness have also been seen.

Through these ups and downs, USD has remained as the dominant reserve currency globally. Despite its large public debt overhang and persistent external imbalances, the deep US financial market, the fact the USD is the currency of invoice for global trade, and attractive risk/reward have kept global investors and savers holding on to the greenback through the decades. 

But USD volatility, frequent instances of weaponisation of the currency, growing China-US rivalry, and other geostrategic considerations are causes for concern. Currency risk management, always critical, has taken on added importance. 

Often currency market volatility goes hand in hand with dissipation of hard currency liquidity. This year, even as USD holders have gotten handsome returns, FX volatility has been substantial and dollar liquidity has steadily tightened. Against this backdrop, a case can be made that for traders and corporates, especially those with emerging markets exposure, there could be benefit from currency risk diversification.

The case for SGD and SGS

With a triple-A rating, boosted by a wide range of league table-leading fiscal, financial, competitiveness, and governance indicators, there is little question about the worthiness of the currency and paper issued by the government of Singapore. We believe that a series of evolving demand, supply, and structural factors are aligning that may mark the beginning of a wider holding of Singapore’s cash and bonds in the global financial stage.

On the demand side, purely from a financial angle, our analysis shows that there are attractive returns on investing in SGD cash and bonds from the perspective of investors based in USD, EUR, JPY, and CNY jurisdictions.

On the supply side, Singapore’s debt stock, with no question on its sustainability, is slated to grow in the coming years, with a chunk of the issuance targeted to finance green infrastructure and green transition. With fiscal structural factors pointing to greater issuance needs in the coming decades, the SGD and SGS market will deepen steadily.

A market structure related development adds to SGD cash/bond story. In late-2021, London Clearing House extended the range of eligible collateral accepted as initial margin to include SGD-denominated government bonds, treasury bills, and cash. This has come at an opportune moment as this year’s spike in market volatility has brought the spotlight back on liquidity risk. At times like these, eligible collateral becomes an important binding constraint.

From the perspective to Singapore’s policy makers, greater interest in SGD cash and bonds may not be a free lunch. It could bring in greater flows, but also there could be outsized outflows in response to global and local developments, causing returns and liquidity volatility. Since virtually all developed markets deal with this type of phenomena, we don’t see it as major impediment to macroeconomic management.

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Taimur Baig, Ph.D.

Chief Economist - Global

Chang Wei Liang

FX & Credit Strategist

Eugene Leow

Senior Rates Strategist - G3 & Asia

Duncan Tan

Rates Strategist - Asia

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