DBS bullish on SGS bonds, with low yields elsewhere

Singapore Government Securities (SGS) bonds should continue to thrive, given low yields on offer elsewhere, said DBS Group Research rates strategist Eugene Leow yesterday.

Longer-term bonds have been the major beneficiary, with benchmark 30-year SGS yields down by almost 70 basis points since June to an all-time low of 1.87 per cent as of Thursday.

The 30-year yield stood at 2.54 per cent on June 3.

A falling yield indicates improving demand for the bond.

"However, the short end of the SGS curve was kept elevated because of still-tight liquidity and increasing speculation of easing by the Monetary Authority of Singapore in October," Mr Leow said.

The benchmark two-year SGS bond yield has fallen just 22 basis points to 1.66 per cent, from 1.88 per cent in early June.

Conditions supporting SGS bonds remain in place, Mr Leow noted. "Flight to safety amid heightened economic uncertainties at a time when yield (in the developed-markets world) is scarce suggests that investors have limited alternatives."

Moreover, SGS bonds still offer one of the highest yields in the developed world, comparable to the United States, he added.

US Treasury bond yields still show downside momentum, so SGS yields will "inevitably" follow, he said, adding that the upcoming issuance calendar in the Singapore market is also light.

A version of this article appeared in the print edition of The Straits Times on August 17, 2019, with the headline 'DBS bullish on SGS bonds, with low yields elsewhere'. Print Edition | Subscribe