We expect 10Y SGS to continue outperforming in the event of a further sell off in US Treasuries. 10Y SGS yields have risen considerably less than 10Y UST in this cycle. In early 2022, before Fed hikes started in earnest, 10Y UST and SGS yields were both close to 1%. However, the SGS yield discount to UST has since widened out to 129bps as the Fed and the MAS both kept to a tightening stance. There could be scope for this to widen further and we see the period in 2005-2007 (when the 10Y yield spread hovered in the 100-200bps range) to be relevant in gauging where this spread could go.
The reasons for SGS outperformance are as follows. As long as the global economy stays resilient, the Fed and the MAS will be unlikely to ease policy settings just yet. Fed Chair Powell also indicated last night that the Fed that it could take “longer than expected” to gain confidence that price pressures are under control. Accordingly, interest rates parity (given the MAS strengthening stance on the SGDNEER) should result in a meaningful SGS yield discount to UST under non-stress conditions. Second, in contrast to the US, investors should not be concerned about the fiscal situation in Singapore resulting in outsized supply. Third, there is only one 10Y auction scheduled this year, compared to two in 2023. Fourth, 10Y yields are elevated from a historical perspective and are nearing the cycle high of 3.51% registered in early October. Accordingly, we think the upcoming auction (auction date on 26 April) should still draw decent demand even if investors have duration worries. 
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