Stable income opportunities in Singdollar bonds

LAST year tested – and proved – the resilience of the Singapore dollar bond market. The year 2025 opened with benchmark rates at a brief high. As the months unfolded, rates began a steady descent, largely in step with major developed-market central banks.

The Singapore Overnight Rate Average (Sora) Overnight Indexed Swap curve mirrored this trend, slipping lower in a measured fashion, led by a sharp decline in short-term yields.

Six-month Sora fell by nearly 150 basis points, while the 10-year dipped around 50 basis points, leaving the curve noticeably steeper by year-end.

Domestic government bonds followed a similar rhythm. Six-month Singapore Treasury Bill yields dropped sharply, while five and 10-year Singapore Government Securities (SGS) yields eased more gradually.

To illustrate, the six-month T-bill yield tumbled roughly 140 basis points, while the 10-year slipped about 70 basis points.

Against this backdrop, AAA-rated government bonds delivered an impressive 8.3 per cent total return, as measured by the Markit iBoxx ALBI Singapore Govt TR Index in Singdollar terms – an encouraging contrast to the 2.3 per cent return of 2024.

Singdollar corporate bonds followed closely, returning close to 6.7 per cent (measured by the Markit iBoxx SGD Corporates TR Index). While trade tensions and slowing global growth rattled markets elsewhere, Singdollar bonds offered resilience, underpinned by a solid issuer base and a durable economy.

Robust issuance

Issuance in Singdollar bonds remained robust. Issuers were quick to respond when benchmark rates fell, seizing the opportunity to refinance and secure funding.

Nearly 150 new Singdollar bonds came to market in 2025, raising total issuance to S$30.9 billion, slightly above that in 2024. Financial institutions led the charge, issuing mostly long-dated subordinated debt to meet regulatory capital requirements.

The issuance momentum appears likely to continue. Lower borrowing costs make locking in funding attractive, while expectations of further US Federal Reserve policy easing in 2026 add fuel to the trend.

Should global growth soften further, issuing bonds becomes an even more important financing option.

Resilient demand

Investor demand, meanwhile, has remained resilient. Singdollar bonds continue to appeal for their healthy issuer base, the Republic’s stable economy, and the strength of the currency.

As yields fall and stay low, we expect the search for income to continue; in fact, history suggests it may intensify. Taken together, these dynamics point to a constructive supply-demand backdrop.

We expect new bond supply to be well-absorbed by strong demand, which should help support Singdollar bond prices.

The sharp repricing in short-term rates has made short-term T-bills less attractive. With the Singapore government bond curve steepening, medium-term SGS securities now offer better value, where the yield pickup over short-term bills is more meaningful.

Beyond the 10-year tenor, the incentive to extend duration is limited. With the curve remaining considerably flat, tenors of more than 10 years do not offer meaningful yield pickup for the additional interest rate risk.

Corporate bonds

For Singdollar corporate bonds, yields have fallen, yet they remain a reliable source of income and a compelling hold-to-maturity option. Importantly, issuers have generally maintained decent credit fundamentals, providing reassurance amid ongoing trade uncertainties.

Within the Singdollar financials space, we continue to see value across Tier-2 bank bonds. Yields of senior bank bonds, which sit higher on the capital structure, have generally tapered off and most are trading in the low to mid-2 per cent range.

Meanwhile, Tier-2 bonds still offer higher yields of mid-2 to low 3 per cent. For Tier-2 bank bonds, we believe banks often have an incentive to exercise the call option early, which lets them redeem these bonds and refresh their Tier-2 capital.

That said, investors should note the loss-absorption feature across Tier-2 bonds. Our preference leans towards Tier-2 issues from French banks – BPCE, BNP Paribas, Credit Agricole – and HSBC, which provide a nice balance of higher income and stable credit profile.

Non-financial Singdollar bonds, while lower-yielding than before, still display meaningful dispersion across issuers, with yields generally ranging from mid-1 to 3 per cent.

This suggests that careful, selective investors can still uncover attractive income opportunities. In a moderating global growth environment, our approach is issuer-specific, favouring those with stable or improving credit profiles and relatively wider spreads.

For investors seeking stable issuers with decent yield, we favour bonds from OUE Real Estate Investment Trust (Reit), OUE, Shangri-La Hotel and Equinix.

These names trade at attractive spreads relative to their peers, making them great options for investors who desire slightly higher income but still want exposure to a stable issuer.

For those willing to stretch for higher yield and accept a modest compromise on issuer credit quality, bonds from Thomson Medical Group, IReit Global, Aspial Lifestyle, MoneyMax and Wee Hur offer compelling returns while maintaining credit quality we consider comfortable.

Looking back, 2025 showcased the resilience of Singdollar bonds, rewarding investors who remained patient. As 2026 begins, the narrative continues.

Carefully selected, strategic positioning will be key to capturing stable income opportunities in a lower interest-rate environment.

The writer is a portfolio manager with the Bondsupermart team at iFast Financial, the Singapore subsidiary of Singapore Exchange mainboard-listed iFast Corporation