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Longer-term Singapore government bonds facing headwinds: DBS

SINGAPORE Government Securities (SGS) bonds with tenors above 10 years have been under profit-taking pressure in the past few weeks, according to DBS Group Research on Wednesday.

The selloff in the longer-term bonds is likely fuelled by two factors: rising developed-market (DM) bond yields and the duration-heavy SGS 2020 issuance calendar, wrote Eugene Leow, DBS rates strategist.

“DM yields appear to have bottomed. While there are lingering uncertainties in the China-US trade talks and Brexit, DM curves have generally normalised (no longer inverted),” Mr Leow said in a note.

The SGS and interest-rate swap (IRS) curves, which are highly correlated to DM rates, have also followed suit, he added.

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Meanwhile, in next year’s SGS calendar, issuances are heavily weighted to the long tenors in Q1 2020, with 10-year and 30-year auctions on Jan 29 and Feb 26 respectively.

“While the SGS yield curve (2- to 30-year bonds) has steepened by 46 basis points since the trough in August, the spread is still broadly in line with the steepness seen in the US Treasury bond curve,” Mr Leow said on Wednesday.

Bond-swap spreads are more stable for the benchmark 2-year, 5-year and 10-year SGS bonds, he noted.

DBS is of the opinion that steepening pressures will persist on the SGS yield curve, especially in the 2- to 30-year spread and the 5- to 30-year spread, in the coming weeks.

Relative to the US Treasuries curve, there is also scope for 5-year and 10-year SGS bonds to outperform further, Mr Leow wrote. However, this would be contingent on the signing of the China-US agreement to avert another round of tariffs on Chinese imports scheduled for Dec 15.