Singapore still pays interest in a world of negative yields

Tokyo

SINGAPORE is offering a rare opportunity to buy positive-yielding quality bonds in a world that's rapidly turning negative.

The city state, which pays the highest returns among economies that have AAA credit ratings from all three major agencies, will sell reopened July 2029 government debt worth S$2.9 billion on Wednesday, the second-largest amount on record for 10-year tenors.

Singapore isn't immune to the underlying trends in global bonds and the sale has to overcome the challenge of a yield curve that's near the flattest on record.

The yield premium that investors receive by holding 10-year notes instead of two-year securities briefly evaporated this month, dropping to minus 1.14 basis point on Aug 15. That's the lowest in data going back to 1998 for this spread, which has managed to claw its way back into positive territory.

Size also matters, as Germany discovered last week, when it failed to meet a two-billion-euro (S$3.12 billion) target last week for the world's first 30-year debt with a zero per cent coupon.

But if Australia is any guide, the Singapore auction should see solid demand given the combination of the country's top rating and high yields.

A flatter curve hasn't dented investor appetite in AAA-rated Australia, which recently drew a bid-to-cover ratio of 3.69 for May 2030 notes. That was up from 2.67 at the previous offering even as the spread between three- and 10-year yields narrowed to the least since 2011.

Singapore's July 2029 debt that's been sold in the past yielded 1.83 per cent in the secondary market on Aug 22. That compares with 1.64 per cent for 10-year US Treasury notes.

This is the last sale of 10-year notes on the city state's schedule to date, with the remaining two auctions on the calendar for two- and seven-year debt. An optional "mini" auction is planned in September but the tenors haven't been announced.

"A lot of investors will be trying to 'catch the tail'," said Eugene Leow, a fixed-income strategist at DBS Bank in Singapore, referring to the chase for the highest yields possible.

"Within the AAA space, I believe 10-year Singapore government securities offer one of the most attractive yields," he said ahead of the gathering of global central bankers at Jackson Hole, Wyoming. BLOOMBERG