LTA 15-year bonds rise sharply

THE price of Land Transport Authority's 15-year 3.51 per cent bonds has risen sharply. It has jumped to 104.4, which represents a 4.4 per cent gain since it was sold three weeks ago at par 100.

Other Singapore dollar (SGD) longer dated bonds such as perpetuals are also staging a rally, as the market increasingly bets there'll be no interest rate hikes by the US Federal Reserve this year.

"Essentially, the market is increasingly betting that there will be no rate hike by the Fed this year, going by the recent news and rhetoric," said Clifford Lee, DBS Bank head of fixed income, on Thursday.

Therefore, the US dollar has weakened and the 10-year US Treasury rates have dropped below 2 per cent, he said.

"The SGD yield has also tracked this with the 10-year swap offer rate (SOR) dropping from its high of this year at 3.20 per cent area to 2.68 per cent today - a 16 per cent drop. Bond prices which move inversely to interests hence have been getting a lift up accordingly," said Mr Lee.

As for LTA's price surge, he noted that when it was sold three weeks ago the bonds "were priced very high then".

The 15-year SOR then was 3.31 per cent, now it has fallen to 2.87 per cent, or a 13 per cent drop, said Mr Lee.

"The market has pretty much been trading more on technical factors now as opposed to fundamentals, and this is reflected in the price movements you are seeing," he said.

Other longer dated bonds have also rallied.

Ascendas Reit 4.75 perpetual bonds sold last week is up to 100.206, while the FCL Treasury Pte Ltd 5 per cent perpetual bonds has recovered to 100.264 from a low of 99.82 on Aug 27. The FCL perps were sold in March this year.

DBS 4.7 perps have also recovered slightly to 102.5 from the year low of 102.393 on Oct 5.

Said Aaron Gwak, Standard Chartered Bank head of Asean debt capital markets: "Bond prices had been suppressed not because of the lack of buying capacity, but rather due to a more cautious sentiment towards rates.

"With US Fed Funds target rate hike now less likely to be immediate, we are seeing investors moving money off the fences and into strong credits. We expect this steady recovery to continue."

According to Todd Schubert, Bank of Singapore head of fixed income research, the US lacklustre jobs report earlier in the month and the subsequent IMF downward revision in growth days later were game changers for fixed income.

"With lower prospects for growth, investors pushed back expectations of a rate hike from December to March or April next year. This "lower for longer" feeling for interest rates has driven the strong performance in fixed income globally, including that of the SGD fixed income market. "

Separately, the Housing and Development Board (HDB) has been assigned an Aaa issuer rating by Moody's Investors Service, the HDB said on Thursday. HDB's S$32 billion multi-currency medium-term note programme was also assigned a (P)Aaa rating by Moody's, it said.