Photo: Bloomberg
Singapore government bonds beat their biggest developed-market peers in May as a flare-up in virus infections in the city state fostered demand for haven assets.
The securities gained 1% last month, a performance which trails only that of South African and Mexican notes among 30 of the world’s largest debt markets, according to data compiled by Bloomberg. Fifteen- and 20-year bonds outperformed other tenors.
Singapore was forced to reimpose a month of lockdown-like conditions from May 16 to quell a rising number of infections, its first return to tightening restrictions since last year. The city-state’s bonds also caught a bid from subdued inflation and a lack of supply pressures.
“The implicit increase in household savings from restrained activity has been beneficial for longer-tenor bonds and supporting their relative outperformance,” said Philip McNicholas, ASEAN foreign-exchange and rates strategist at Bloomberg Intelligence. “A general normalization in US post-reopening economic activity could give a further tailwind to Singapore dollar bonds as Fed tightening gets pushed back.”
Infections in the city state have since stabilised. Prime Minister Lee Hsien Loong said Monday restrictions may be eased in two weeks.
The lack of price pressures is another boon for bonds. Economists estimate that Singapore’s consumer prices will rise just 1.3% this year, compared with an average gain of 2.3% for developed markets. This would make the city state the only AAA-rated market that offers positive inflation-adjusted yields.
Singapore’s bonds may remain supported because of a lack of supply of long-dated debt in June, said Winson Phoon, head of fixed-income research at Maybank Kim Eng Securities Pte. in Singapore. An auction of new July 2031 notes on June 28, the last scheduled sale of 10-year debt this year, will be the market’s next point of focus.
“Overwhelming US dollar liquidity is prompting investors to look for better returns outside of the US,” said Eugene Leow, a rates strategist at DBS Bank Ltd. in Singapore. “Singapore is doing well on the vaccination front even as the economy is still under more stringent Covid-19 restrictions.”
