Opportunities in the S’pore bond market: Go for shorter-dated bonds

In the first half of 2022, equity and bond markets suffered losses as supply constraints and geopolitical tensions impacted the markets negatively. The Russia-Ukraine crisis, Covid-19 lockdowns in China, and rising global food protectionism fueled inflation in the first half of 2022. This led to the US reporting one of the highest inflation data in over 40 years. In May 2022, the US’ headline Consumer Price Index came in at 8.6 per cent year on year (yoy), the largest increase since 1981.

This led to the US Federal Reserve opting for a 75 basis points rate hike of its Federal Funds Rate in June, in order to tame inflation in the US, the largest rate hike in over 28 years. This sent the US Treasury (UST) yield curves higher as a result. For the first half of 2022, the 10-year UST yields have risen approximately 130 basis points for the first half of the year.

Interest rates in Singapore have also risen. The Singapore Overnight Rate Average (SORA) rose by about 150 basis points for the first half of 2022. In Jan and Apr this year, the Monetary Authority of Singapore opted to tighten monetary policy through the S$NEER policy band in order to combat inflation in Singapore. In May, Singapore’s CPI-All items inflation rose by 5.6 per cent yoy while core inflation rose to 3.6 per cent. Higher prices across a broad range of categories including food, services, retail and other goods, as well as electricity & gas, contributed to inflation for May.