SINGAPORE real estate investment trusts (S-Reits) saw drawdowns on Monday on elevated volumes, while yields on Singapore's 10-year government bonds climbed 10 basis points to 2.4 per cent, a new high since October 2014, putting pressure on bond prices here.
CMC Markets analyst Nicholas Teo said this in a note on Tuesday morning. He added this came on the back of last Friday's positive US jobs report, which led the yield on 10-year US Treasuries to surge to their highest level this year, past the 2.2 per cent yield.
This was likely because the market now expects the Federal Reserve's interest-rate hike to come sooner rather than later, he said. Interest-rate increases are seen as a negative for yield instruments such as Reits.
"In turn, this has laid renewed pressure on Singapore Reits, a proxy yield play in the local market. Suntec Reit, CapitaMall Trust, Mapletree Commercial Trust and Fortune Reit, all saw drawdowns of between 1.4 per cent to 3.35 per cent in trading yesterday (on Monday)," he said.
By 11.34am on Tuesday, only Fortune Reit had extended its decline to HK$8.18, down 23 HK cents, or 2.7 per cent. The Reit owns malls in Hong Kong. The other three had recovered and risen 0.3 to 1.6 per cent.
"Another factor that may weigh on local Reits is the notion that they remain 'heavily owned'. Their popularity over the past decade, combined with local investors' thirst for yield, have seen this sector outperforming the market and growing in size from almost nothing in 2001, to a current market capitalisation of roughly S$60-70 billion.
"With strong headwinds coming from an earlier Fed rate hike, local Reits may find it a challenge to match their collective past performances," Mr Teo added.