30-year SGS (Infrastructure) bonds issue likely to have 'decent demand': DBS

THE 30-year Singapore Government Securities (SGS) (Infrastructure) bonds, expected to be issued on Oct 1, will likely see decent demand, said DBS Group Research in a note.

Rates strategist Eugene Leow expects the auction size will be close to S$2 billion to allow for sufficient liquidity. The programme allows the government to issue bonds to fund major and long-term infrastructure projects in Singapore.

Mr Leow said there are unfounded concerns of a lack of demand for bonds of longer durations, noting that there is a scarcity of AAA-rated government bonds in the current environment. Furthermore, the current 30-year SGS yield of 1.89 per cent ranks as one of the highest in the world.

"With benefits from these infrastructure projects likely to be spread over decades, it makes sense to spread liabilities over a similar period," he said, adding that safeguards have also been put in place to ensure that the rating does not get threatened.

Mr Leow noted there were also initial concerns of a 20-year SGS bond issue in August being "too much for the market to absorb", as it was followed quickly with the SGS (Infrastructure) issue, but the former had closed with a bid-to-cover of 2.24 and a cut-off yield of 1.86 per cent.

Issued by the Monetary Authority of Singapore, the SGS (Infrastructure) bonds will be created under the proposed Significant Infrastructure Government Loan Act (SINGA), and rank pari passu with the current category of SGS that will be renamed SGS (Market Development).

Mr Leow said from an investor's perspective, there should be no difference between the SGS (Market Development), and SGS (Infrastructure) categories. Since both have the same credit, regulatory, underwriting, market support and tax perspectives, they should be seen "from the same curve".

The first tranche of the SGS (Infrastructure) bonds will be the last long-dated SGS issuance for the year. The issue size will most probably be announced on Sept 21, with the auction likely to take place on Sept 28.

Under SINGA, the government also plans to issue green bonds to fund long-term infrastructure projects which are considered environmentally sustainable, such as new rail lines. These green bonds will count towards the total borrowing limit of S$90 billion specified under the proposed law.

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