All credit to the local bond market last year

Firms pursuing growth through acquisitions, low interest rates helped spur activity: Report


There was plenty of volatility around last year, given the geopolitical and economic concerns that were bubbling away, but the local credit market still clocked up a robust 12 months, OCBC Bank said yesterday.

It pointed to a range of factors, including firms pursuing growth through acquisitions and low interest rates, that helped spur activity in the market.

The numbers tell the story: Primary market issuance recovered from the $21.5 billion racked up in 2018 to rise 11.9 per cent year on year to $24.1 billion, with property companies the key contributor to the strong increase.

There were also new corporate issuers tapping into the bond market, including Singapore Press Holdings, SPH Reit and Keppel Infrastructure Trust.

Foreign issuer Ford Motor Credit was another debutant here, while Metro Holdings and Shangri-La Hotel, which first issued in the Singapore bond market in 2018, returned with new issuances last year.

More than 42 per cent of issuances were at the longer end of the yield curve - mostly perpetuals and above 15-year tenor. Short-dated issuances - two to five years - made up the largest proportion of issuances in 2018 in terms of tenor, but were down to 33.6 per cent last year.

Even with no defaults, OCBC estimates that only 4.7 per cent of issuance in Singapore were true high-yield bonds last year.

Instead, 2019 was a bumper year for perpetual issuances, which totalled $4.8 billion.

OCBC expects these instruments will be strong in this half of 2020.

Investors have become more discerning, even though there were no new defaults in the Singdollar bond market last year.

Since the default of Trikomsel in October 2015 - the first bond default since 2009 - there has been increased attention about possible defaults.

  • 11.9%

     Year-on-year rise in primary market issuance, from $21.5 billion in 2018 to $24.1 billion last year.

Excluding perpetuals and callable bonds, $14.6 billion of corporate bonds will face maturity this year. OCBC considers 10 issuers to be at higher risk, with a total amount outstanding of $1.5 billion.

These issuers range from diverse sectors, including property development, industrial, logistics and small shippers.

However, OCBC expects the recent out-performance of stocks will make the competition tougher for investment flows.


Despite fears of a recession in the United States midway through last year, dividend income from S&P 500 stocks caught up with the yield of 10-year US Treasury bonds.

While stocks may have beaten bonds at their own game as an income-generating asset, bonds will remain useful as a hedge and investment diversification asset, OCBC said.

"Ultimately, bonds have a maturity date with a predetermined return if held to maturity. Conversely, there is no guarantee (or near-certainty) of any price for equities at any given date," said its report.

Simply put, equities are inherently volatile and there is no dearth of risk events on the horizon or have yet to appear.

But risk-free yields are near all-time lows so higher returns can be achieved by taking on selected credit or structural risks, said OCBC.

Investors may need to move out of safer credits into corporate bonds with higher yields.


OCBC also looked at the property market, noting that private real estate prices still eked out a small gain of 2.5 per cent last year, despite a high supply and cooling measures.

OCBC expects prices to rise by mid-single digits this year, driven in part by upgraders.

The better supply situation, higher rents and a better economy should also bolster property.

A version of this article appeared in the print edition of The Straits Times on January 07, 2020, with the headline 'All credit to the local bond market last year'. Print Edition | Subscribe