No let up in demand for SGD bonds; 2 deals on Monday draw S$4.3 billion orders

THE demand for local bonds is relentless, even after a gangbuster last week.

On Monday, two new deals drew orders of a combined S$4.3 billion which led to a dive in pricing as investors seemed gripped by fears of lower interest rates.

Canadian insurer Manulife Financial Corporation had orders of over S$3.5 billion for its 10 year deal which will be priced at 3.85 per cent, tightened from the initial 4.15 per cent guidance. The insurer is expected to print only S$300-400 million bonds.

The Manulife deal is a rare issue in terms of structure, said Clifford Lee, DBS Bank head of fixed income. "No loss absorption, no right to defer coupons, unlike some of the recent banks deals," said Mr Lee.

"This enlarges the investor base, as some fund managers cannot invest in bank Basel III compliant structures with loss absorption features," he explained. Mr Lee noted that investors for Manulife bonds are broad based - insurers, asset managers, hedge funds and private bank clients.

Manulife is also a familiar name as it is a leading global insurer, noted Terence Lin, assistant director, bonds and portfolio management, iFAST Corporation.

By assets, Manulife is ranked 13th globally with US$508 billion worth of assets at end-2015.

Manulife also has a 15-year agreement with DBS Bank signed in 2015 so that it can distribute its insurance products through the bank's branches in Singapore, China, Hong Kong and Indonesia.

Another well-sold bond on Monday was Mapletree Logistics Trust perpetual priced at 4.18 per cent, down from initial guidance of 4.5 per cent after it received orders of US$800 million. The issue is expected to be capped at S$250 million.

Last week saw this year's largest weekly sale of bonds so far in 2016 - eight deals worth S$2 billion. Year-to-date volume is S$9.9 billion, up 21 per cent from a year ago.

Among the transactions last week were UOB's S$750 million deal, National Australia Bank's S$450 million undertaking and one that was S$425 million from Societe-Generale.

"You'd think it'd (market) would be saturated after last week, now we have two (deals)," said Mr Lin.

With investors clamouring for debt, Singapore dollar bonds are outperforming equities.

The Singapore Fixed Income (SFI) index hit a new high of 126.014 on May 13 with a year-to-date return of 3.96 per cent, according to the Singapore Exchange.

YTD, the SFI has outperformed the Straits Times Index by 9.09 per cent.

Fixed income bankers said that the strong demand for Singapore dollar bonds is a global phenomenon.

Elaine Ngim, Union Bancaire Privée head of fixed income research Asia, said that the interest from investors in fixed income is not specific to the Singapore dollar bond market, but a trend across markets in emerging Asia.

"With flat to slow global growth outlook, and whatever minimal growth that has been seen thus far, expectations have been revised downward, which makes investing in debt issues a much more attractive option," she said.

Todd Schubert, Bank of Singapore, head of fixed income research said that a few factors favour investment in fixed income securities and has resulted in the asset class' significant year-to-date outperformance versus equities.

First, accommodative monetary policies globally have resulted in a "lower for longer" outlook for interest rates, he said.

At the beginning of the year, consensus expectations were for rising interest rates as a result of an expected three potential Federal Reserve hikes.

"To the contrary, the 10-year US Treasury has declined from 2.3 per cent to 1.7 per cent. Second, appreciation in the US dollar has been curtailed, with the Singapore dollar rallying from 1.42 to 1.37. This has renewed interested in local currency bonds globally, including bonds denominated in Singapore dollars."