SGS Rates: 10Y SGS looking attractive again after selloff
The adjustments across the USD rates space over the past two weeks have also impacted SGD rates. The Singapore Government Securities curve bear flattened, with 2Y and 5Y tenors bearing the brunt of the selloff as market participants factored in a more hawkish Fed. Yield at the front of the SGS curve (6M and below) were hardly changed. Meanwhile, the back of the curve (10Y and beyond) level-shifted higher by around 20bps. At current levels, we think that there is value to be found in SGS, especially in the 10Y tenor. While there are risks that another leg higher in UST yields could push SGS yields up, we note some supportive factors. First, the size of each SGS auction could be smaller. Notably, the recently concluded 5Y reopen (closer in tenor to a 3.5Y tenor) drew a relatively low cut-off yield of 3.19%. Note that this cut-off was registered even as these tenors were trading rich (yields much lower than UST equivalents) before the auction. Second, there is a still a reasonable pickup for USD based investors from asset swapping. This is arguably more applicable for the 10Y tenor rather than the 2Y or 5Y. Third, we think that 3% is a decent level to accumulate 10Y SGS longs. To be sure, there were two periods in the current tightening cycle that 10Y SGS yields pushed decisively above 3% (late-Sep to early Oct, late Feb to early Mar). In both instances, market participants were very worried about a hawkish Fed and this scenario appears to be repeating with perhaps less intensity. There may also be some lingering concerns over the upcoming 10Y SGS auction (announcement date on 20 June), but at these yield levels, we don’t think there will be material cheapening into the auction. Current settings provide an opportunity to add SGS longs on the price dip.
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.