IT MIGHT not seem like it at the moment given the gloom on all fronts, but there is at least one sign that an economic turnaround is in the works.
Mr Kelvin Tay, executive director of product and services consulting for UBS Wealth Management here, on Friday said that a classic signal indicating a rebound could already be in place.
Mr Tay told the 7th Business Outlook Forum, which is organised by the Singapore Chinese Chamber of Commerce and Industry and The Business Times, that a narrowing of inter-bank spreads was apparent.
Bank spreads was one of the six signs Mr Tay said one 'should look out for, that would hopefully lead to recovery'.
The others are a tightening of corporate bond spreads, mortgage rates dropping sharply, bond issuance increasing, less equity market volatility and US property prices stabilising.
Mr Tay cited a Bloomberg graph that showed Ted spreads narrowing between October and December. The spread measures the difference between the interest rates offered on US three-month Treasury yield and the three-month London Interbank Offered Rate (Libor).
Libor, like the Sibor here, is the rate at which banks lend to each other.
The Ted spread can be taken as an indicator of credit risk: an increase could signal an increased risk of default and a decrease can indicate reduced risk.
Two other emerging signals of stability are the decline in volatility of equity markets and the tightening of corporate bond spreads.
Bloomberg graphs showed how volatility of the S&P 500 in the US had declined between October and December. Corporate bond spreads have been slowly declining since November, Mr Tay pointed out.
'A reduction in corporate bond spreads would allow corporates to borrow and refinance at more generous rates and prevent the disruption to the normal course of business from financing worries,' he added.
But other stability signals had yet to manifest themselves sufficiently, particularly those related to stabilising of US property prices and mortgage rates dropping.
'Lower rates would improve housing affordability, helping to boost housing demand which could put a floor on prices and begin to clear inventory,' said Mr Tay.
'Given the depth and complexity of the situation, it is difficult to put a handle on when all the signals will occur. We also need to see the fiscal policy responses of major economic regions.
'Importantly, it doesn't mean that we are clearly out of the woods when these signals fall into place. But they certainly need to be in place before we can expect conditions to normalise.'
