Singapore dollar bonds remain a core income allocation as markets bounce back

Even in a potential rising rate environment, Singapore dollar (SGD) bonds may continue to offer attractive opportunities for selective investors, says PineBridge Investments’ senior portfolio manager Omar Slim

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Mr Omar Slim, CFA, senior portfolio manager at PineBridge Investments. PHOTO: PINEBRIDGE INVESTMENTS

Local currency bond yields have gone up in the first quarter, in line with rising US Treasury yields driven by better US growth prospects and, to a lesser extent, higher inflation expectations. Mr Omar Slim, CFA at PineBridge Investments, who manages the firm's SGD bond strategies, says this development does not alter the core role of SGD bonds in investors' portfolios. This is because the market continues to offer stable returns and opportunities for enhanced yield, in spite of a potential for rising interest rates, he adds.

"We believe high quality SGD corporate bonds offer some value to Singaporean investors. While the Ministry of Trade and Industry left its GDP growth forecast for this year unchanged at 4 per cent to 6 per cent (as of Feb 15, 2021), we believe that GDP expansion should come in at the higher end of that forecast. The smooth roll-out of vaccines and relaxation of Covid-19 restrictions should further underpin growth for the year," he says.

Singapore's GDP growth shows steady recovery

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Source: MTI, as of April 14, 2021. *Advanced estimate. For illustrative purposes only. We are not soliciting or recommending any action based on this material.

Public spending has increased in response to the pandemic but fiscal policy remains disciplined and Singapore has plenty of fiscal ammunition. Reflective of this strength, SGD government bonds have fared better than US Treasuries over the past year and over a five-year period.

SGD government bonds have outperformed US Treasuries in one- and five-year periods

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Source: PineBridge Investments and Bloomberg as of March 31, 2021. For illustrative purposes only. We are not soliciting or recommending any action based on this material. Past performance is not indicative of future results.

With healthy growth numbers seen in the coming months, credit spreads continued to tighten as corporate earnings held up better than expected. Investment-grade credit spreads continued on its tightening path as overall corporate earnings affirmed that the economy is well in its recovery phase.

Shorter-duration corporate bonds to shine

While the US Federal Reserve chair has dismissed a rate hike happening this year as "highly unlikely", the risk associated with such a move remains a key focus. With this in mind, Mr Slim takes a highly selective approach in portfolio construction.

"Despite the accommodative monetary policies in place, we are cautious on duration risk as economic recovery and inflation expectation strengthen. In this environment, we favour shorter-duration bonds, which have less interest-rate sensitivity, and can help cushion the impact of a rate hike," he says. "We also continue to favour high quality investment-grade corporate bonds, which we believe offer enhanced yields as the recovery accelerates."

Duration measures how much a bond's price is likely to change should interest rates shift as bond prices move inversely to interest rates. For example, a bond with an average duration of 10 years may lose approximately 10 per cent of its value if interest rates rise 1 per cent. In general, bonds with longer maturity dates1 tend to be more sensitive to interest-rate changes.

"Interest-rate hikes are not always bad for investors. Rates have been very low for an extended period; a rate tightening today signals improving economic conditions, which is usually positive for risk assets such as corporate bonds," Mr Slim notes.

SGD bonds: a valuable core allocation

Mr Slim says an actively managed SGD bond portfolio with the flexibility to find "sweet spots" across issuers, ratings, maturities and sectors of the market, and adjust positions as conditions change would be well-positioned to mitigate interest-rate risk without sacrificing quality and potential returns.

"This strategy allows investors to hold a highly select portfolio of bonds that offers the benefits of stable income and capital preservation while staying nimble against potential volatility," he adds. "Therefore, SGD bonds should continue to be a valuable core allocation for local investors."

Credit quality also remains key in the corporate segment as defaults do happen in the SGD bond market, but he says default risk can be avoided with thorough due diligence.

"We put significant resources to our credit research process, and we carefully analyse and continuously monitor our credit exposures," he adds.

Adding to the strength of the process is the integration of environmental, social and governance (ESG) analysis in the credit selection process.

"We integrate ESG in our investment process and every issuer we have is analysed along ESG factors," he says.

For more on PineBridge Investments' SGD bond offering, please visit


1 Maturity refers to the date when the bond becomes due.


All investments involve risk, including the loss of principal amount invested. Past performance is not indicative of future results. The information presented herein is for illustrative purposes only and should not be considered reflective of any particular security, strategy or investment product. It represents a general assessment of the markets at a specific time and is not a guarantee of future performance results or market movement. This material does not constitute investment, financial, legal, tax or other advice; investment research or a product of any research department; an offer to sell, or the solicitation of an offer to purchase any security or interest in a fund; or a recommendation for any investment product or strategy. You are solely responsible for deciding whether any investment product or strategy is appropriate for you, based upon your investment goals, financial situation and tolerance for risk. Any views represent the opinion of the manager and are subject to change. Views may be based on third-party data that has not been independently verified. PineBridge Investments does not approve of or endorse any republication or sharing of this material. We are not soliciting or recommending any action based on this material. In Singapore, this document is issued by PineBridge Investments Singapore Limited (Company Reg. No. 199602054E), licensed and regulated by the Monetary Authority of Singapore (MAS). This advertisement or publication has not been reviewed by the MAS. Investors should note that the website and any other website (including any contents therein) referred to in this document have not been reviewed or endorsed by the MAS.

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