Investors back in Singapore bond market with a vengeance

Singapore

SINGAPORE bond investors have rushed back into the market on fears that yields could fall further.

Singapore dollar bond issuance this month hit S$2.3 billion from five deals, almost double the S$1.25 billion sold in August 2018.

In the year to date, Singapore dollar bond issuance is up 48 per cent to S$20 billion.

On Wednesday, UBS sold S$750 million Tier 1 NC5 perpetuals. Perpetuals have no fixed maturity though the issuer has the right, but not the obligation, to call or redeem them; NC5 or non-call 5 means it won't happen for at least five years or until 2024.

Investors swarmed all over UBS' S$750 million 4.85 per cent issue, with orders over S$3.4 billion. It was also the Swiss bank's second Singapore dollar perpetual issue in 12 months.

That demand meant UBS was able to tighten pricing from the initial 5 per cent guidance, said Clifford Lee, DBS Bank head of fixed income.

UBS is rated "A- Stable" by S&P, and "A+ Stable" by Fitch. Joint lead managers for the deal are UBS, DBS Bank, Standard Chartered Bank and United Overseas Bank.

Mr Lee said: "The market is springing into action after the summer lull."

For now, it seems market volatility and trade war anxieties plus other geopolitical tensions are taking a back seat, with investors piling in before interest rates fall even more.

A week ago, CapitaLand sold S$800 million 3.15 per cent 10-year notes, with the order book recording about S$1.4 billion from over 65 accounts, which will be good at reoffer, sole global coordinator DBS said.

The senior unsecured notes, issued by subsidiary CapitaLand Treasury, carry a coupon of 3.15 per cent per annum, 144 basis points above the 10-year swap offer rate (SOR).

Investors might moan at the issuer's low coupon.

Ang Chung Yuh, iFAST Corp's manager of the Fixed Income Division, said: "The lower coupon rate was entirely due to plunging long-term benchmark rates, as 10-year Singapore dollar SOR fell from 2.1625 per cent at the start of the year to 1.6465 per cent on Aug 26."

OCBC Credit Research said: "While we thought the pricing at 3.15 per cent was fair, it has traded up in the secondary market to 3.07 per cent, which is beyond our fair value (that is, it is looking expensive)."

DBS' Mr Lee said: "It traded up, so it's a good outcome for both the issuer and investors."

Plunging interest rates across the world are benefiting bond issuers in every market, be it in the Singdollar space or in US dollars.

Also on Wednesday, PSA sold US$500 million 10-year bonds at 2.125 per cent. It was also met with strong demand with orders over US$2 billion.

PSA is 100-per-cent owned by Temasek Holdings. The expected issue rating is Aa1 by Moody's.

It does look like funding cost is still getting lower for issuers in the current interest rate environment, said OCBC. SingTel recently priced a 10-year USD-denominated paper which yielded 2.459 per cent at issuance. In 2018, a similar 10-year USD-denominated bond by SingTel was priced at 3.875 per cent at issuance.

With interest rates falling like 10 pins, optimistic bankers see the local bond market heading for a bumper year.

Mr Lee is looking to 2019 issuances to beat last year's S$22 billion.

The high was S$31.6 billion in 2012, followed by 2017's S$24.8 billion.

He said: "We still have a few months to go, and we'll beat 2018 for sure, The question is whether it'll beat 2017, and become second highest in history."

Investors remain risk-averse, not rushing in nilly willy; their appetite is still for familiar credits and strong names, Mr Ang noted.

This can be seen from the SGD corporate debt issuance statistics in August, he said. This month, issuers were from the likes of CapitaLand, SPH Reit, Mapletree, and Ascott Residence Trust - which enjoy strong credit standing in the market, he said.