SGD Rates: Market stresses matter more than MAS tightening

Market stresses and liquidty matter more than MAS tightening for SGD rates.
Group Research, Eugene Leow11 Oct 2022
    Photo credit: Unsplash Photo

    Market stresses have more impact on short-term SGD rates than monetary policy tightening from the MAS. This week, market participants generally expect that MAS to tighten again. We expect the slope to be re-centred higher (see here). Based on where the SGDNEER is estimated to be trading around, we reckon this might be well braced already. For the SORA, we are doubtful that tightening from the MAS would have much impact. The SORA has been elevated and we suspect that this has got to do with upward pressures in the USDSGD amidst elevated volatility in the market.  SORA averaged 3.25% thus far in October, some 20bps higher than average SOFR over the same period. The mix of tighter SGD funding conditions (which do not look likely to abate for a while, see here) and USD strength could well keep SORA (and shorter-term OIS) high for some time until a Fed pivot becomes clearer (possibly later this year). 

    The same dynamics do not apply as much to the longer tenor SGD rates, especially SGS yields. Importantly, there are no more SGS auctions scheduled for the rest of the year (we are awaiting the 2023 issuance calendar due in late October / early November), in contrast to US Treasuries. Second, we think that 10Y SGS yields (and SGS yields in general) appears to be somewhat sticky at current levels (close to 3.5%). This view should hold as long as the Fed terminal estimates do not go significantly above the 4.5-5.0% range. The 10Y yield spread of SGS over UST is around -50bps, compared to around -20bps at the start of September. We think that SGS will probably be more resilient than UST if yields continue to be under upward pressure. However, from a spread basis, we are somewhat neutral at current levels.

    Eugene Leow

    Senior Rates Strategist - G3 & Asia
    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.

    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.