Three-month Sibor continues to rally while SOR crashes

Singapore

LOCAL interest rates remain very volatile amid market uncertainties.

The key three-month Singapore interbank offered rate (Sibor) continued its upward trajectory on Thursday, though the pace eased slightly, while the more volatile three-month swap offer rate (SOR) crashed for the second day running. (see infographic)

On Thursday, the three-month Sibor rose to yet another high of 0.63920 per cent, up 0.00213 point from Wednesday's 0.63707. The three-month Sibor, used mainly to price home loans, is now up 40 per cent from a week ago, since Jan 2.

But its more market-oriented cousin, the three-month SOR, has crashed. On Wednesday, it was quoted at 0.70588 per cent, down 12 per cent from Tuesday's 0.80224. And against Monday's high of 0.92956 per cent, the three-month SOR, used typically for commercial loans, has plunged 24 per cent. The SOR reflects Sibor and Sing dollar fluctuations.

The SOR fixings for Jan 7 were lower by 8 to 10 basis points and the curve has reverted to a normal upward sloping one, said Victor Yong, United Overseas Bank interest rate strategist. "The lower SOR yields helped to moderate the Sibor curve," said Mr Yong.

Saktiandi Supaat, Maybank's head of FX research, warned that the volatility is far from over as US dollar strength is likely to continue. "The expectations in SGD has come off, there was a bit of overshooting, but is this temporary?" posed Mr Supaat.

He said that the SOR tends to move first as it is more market-oriented while the Sibor lags because it's what banks charge one another.

He noted that the Sing dollar strengthened on Thursday - it was 1.3416 at 1am, up 0.3 per cent to 1.3381 around 6.28pm.

"It's very volatile, oil is not helping, euro is not helping, Greece is not helping," he said.

Mr Yong said: "Renewed upside momentum in USD/SGD will drag SOR rates higher and faster than equivalent moves in USD."

Although there was better risk appetite on Thursday for Asian markets, downside risks are still lurking, he said.

"Commodity prices remain fragile and could suffer further drops depending on the outcome of Friday's (US) payrolls (data), an upside surprise here would invigorate the long USD trades and the immediate impact would be negative for commodities," he said. "The combined strong USD and weak commodities spillover into Asia may prompt outflows and this would be negative for equities and Asian currencies."