S$ bonds resilient amid equity, currency selloffs

THE Singapore bond market is holding up rather well amid a stockmarket selloff and currency jitters, as bond investors remain comfortable with local issuers.

On Monday, the Singapore Fixed Income index (SFI) rose 0.31 to 120.06. Year to Sept 28, the SFI has outperformed the Straits Times Index by 17.48 per cent (+0.45 per cent vs -17.03 per cent). The all-time SFI high is 121.771 on Jan 26, 2015.

In a review for the week ending Sept 25, the Singapore Exchange said the SFI rose marginally (+0.06 per cent) across both corporate and government bond segments.

Corporate bonds gained 0.08 per cent, largely attributed to a 0.15 per cent increase in the statutory board bond segment. Government bonds gained a marginal 0.05 per cent and is currently the best-performing segment in September, up 0.84 per cent.

Two tranches of Land Transport Authority (LTA) bonds sold in the middle of September have done pretty well.

On Tuesday the LTA five-year 2.73 per cent rose to a high of 101.016 while the LTA 15-year 3.51 per cent hit 100.878. Both were issued at 100 par.

Even the decline of the Singapore dollar (S$), which on Tuesday fell to a six-year low of S$1.43 against the greenback, has not deterred investors. Year to date, the S$ has fallen some 7.4 per cent.

Todd Schubert, Bank of Singapore head of fixed income research, said Singapore-dollar corporate bonds have proven to be fairly resilient during the recent selloff in risk assets.

"The holders of SGD bonds are primarily retail and local in nature. These individuals tend to feel comfortable with the local names and are willing to hold during the downturn," he said.

The historical default record for bonds denominated in S$ issued by Singapore-domiciled companies is very low and while there has been volatility in the S$, it has been considerably less than other South-east Asian currencies such as the Indonesian rupiah and Malaysian ringgit, said Mr Schubert. Year to date, the rupiah and the ringgit are down 15 per cent and 21 per cent respectively.

Another factor for the resilience of S$ bonds is the small supply.

The lack of new issuance in 2015 has led to a general scarcity of bonds, said Timothy Tay, UBS chief investment office wealth management, head Asia Pacific credit.

Coupled with that the buyer base in Singapore comprises "mainly real money managers and private banks, which tend to be long term buy and hold investors".

Mr Schubert said the considerably smaller issuance size in S$ results in less liquidity and "one sees less trading oriented volatility as a result".

He also noted that while US Federal Reserve chair Janet Yellen did say she expects interest rate hikes to come before year-end, she had qualified that is subject to market conditions.

"Hence, it is quite possible that rates could be held until December if not into the first quarter of 2016, which would be positive overall for bonds," said Mr Schubert.