The issuance calendar structure for Singapore government securities (SGS) bonds in 2023 looks “broadly similar” to that of 2022’s, says Selena Ling, chief economist & head of treasury research & strategy at OCBC Bank.
In 2023, there will be eight scheduled re-openings with one scheduled new five-year issues in July. The eight scheduled re-openings comprise two 2-year issues, two 5-year issues, two 10-year issues, one 15-year issue and one 30-year issue, notes Ling.
There are two potential mini-bond issues in March and July of 2023, with details to be announced later, as well as a re-opening of the 50-year syndicated Green SGS (Infrastructure) bond in the later half of 2023, she adds.
The estimated gross SGS bond insurance size is estimated to be around $22 billion to $24 billion, which is 1.2% to 10.7% lower than this year’s. The size excludes the optional mini-bonds and the 50-year syndicated Green SGS (Infrastructure) bond.
The year 2022 saw a bumper crop of issuances for SGS bonds and treasury bills (T-bills) amid healthy demand for higher yields.
For 2022 year-to-date, SGS gross issuance excluding the Green SGS (Infrastructure) issue in August amounted to $24.4 billion with an average bid-cover ratio of 2.11x, Ling notes.
“The bulk (seven of the nine bond issues) were re-openings, with longest tenor offering a 30-year SGS (infrastructure) bond issued on Oct 3. The rest comprises of SGS (Market Development) bonds across the two-year (two issues), five-year (four issues), 10-year (one issue) and 15-year (one issue),” she adds.
“The SGS bond yield curve had bear-flattened with two-year yield up 219 basis points (bps) whereas the longer-dated bond yields rose only 90 bps (30-year) to 153 bps (10-year),” Ling continues. “This meant that the SGS bond yield curve is essentially flat with both the two to 10-year yield curve at a narrow 15 bps while the 30-year bond yield of 2.99% is actually below that of the two-year bond yield.
To the analyst, this is still milder than the adjustments seen in the United States Treasury (UST) bond market for the year-to-date. “The brunt of the adjustment was felt most keenly at the front-end, with T-bills yield having spiked some 369 bps for the three-month tenor,” she writes.
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“Hence, demand for T-bills had surged as investors deployed cash to take advantage of the higher yields,” she adds. “The year-to-date issuance of T-bills amounted to $113.3 billion, which is 8.1% higher than that issued in the same period last year. In particular, the average issuance size of the six- and 12-month T-bills has risen from [around] $3.881 billion to [around] $4.196 billion for each auction this year compared to a year ago and the average bid-cover ratio has also increased from 2.21x to 2.30x.”
To Ling, the lower size in 2023 is “not unexpected”. This is since the global interest rate environment has pivoted to the theme of inflation having peaked or is in the process of peaking. As such, global central banks like the US Federal Reserve may slow down their pace of rate hikes with the future market pricing of the terminal Fed Funds rate having shifted from 5.1% to around 4.9% in mid-2023 and pricing in a possible 50bps cut by end-2023, she says.
She adds: “If the domestic headline and core inflation also peaks in 1H2023, then there is scope for [the] Monetary Authority of Singapore (MAS) to stay its hand at the October 2023 monetary policy statement (MPS) meeting even if the April 2023 MPS meeting remains live at this juncture.”
She continues: “Even if a more stimulative 2023 Budget is factored in to assist with cost-of-living issues, there is no need to fund via SGS issuance per se.”
In 2023, the market environment is also tipped to turn “less rosy” with the MAS noting that outstanding SGS bonds have grown by a steady 9% per annum (p.a.) over the last five years and despite the frontloading of global rate hikes, demand for SGS bonds remained “healthy” in 2022.
Consequently, the outstanding SGS bonds rose from $149.1 billion to $161.1 billion as at Nov 1, Ling points out.
Looking ahead, however, she says that the central bank expects that global financial conditions are likely to be “less accommodative, with heightened market volatility amid a reassessment of the growth and inflation outlook”.
“Hence, MAS will calibrate overall issuance of SGS (Infrastructure) and SGS (Market Development) to meet market demand, with the assurance that each issuance size will also be calibrated to facilitate an efficient and liquid secondary market,” says Ling.
“MAS also plans to reopen the 50-year Green SGS (Infrastructure) bond maturing in August 2072 in the latter half of 2023, with details to be announced closer to the date,” she adds.
