Singapore Government Securities (SGS) bonds with tenors above 10 years have been under profit-taking pressure in the past few weeks, DBS Group Research said yesterday.
The sell-off in the longer-term bonds is likely fuelled by two factors: rising developed market (DM) bond yields and the duration-heavy SGS 2020 issuance calendar, wrote rates strategist Eugene Leow.
"DM yields appear to have bottomed. While there are lingering uncertainties in the China-US trade talks and Brexit, DM curves have generally normalised (no longer inverted)," he said in a note.
The SGS and interest rate swap (IRS) curves, which are highly correlated to DM rates, have followed suit, he added.
Meanwhile, in next year's SGS calendar, issuances are heavily weighted to the long tenors in the first quarter, with the 10-year on Jan 29 and the 30-year on Feb 26.
"While the SGS yield curve (two-to 30-year bonds) has steepened by 46 basis points since the trough in August, the spread is still broadly in line with the steepness seen in the US Treasury bond curve," Mr Leow said yesterday. Bond swap spreads are more stable for the benchmark two-, five-and 10-year SGS bonds, he noted.
DBS believes steepening pressures will persist on the SGS yield curve in the coming weeks, especially in the two-to 30-year spread and five-to 30-year spread.