20171130-大华银行-Singapore_Rates_Monthly_7页_460kb

Singapore Rates Monthly Summary

Core Content

This document provides an analysis of Singapore's money market rates, government securities (SGS), interest rate swaps (IRS), and cross currency basis in November 2017, with forecasts for the following months. It highlights the impact of global monetary policy, particularly the Federal Reserve's (FED) rate hike cycle, on local financial markets.

Main Points

SIBORs and SORs

• SIBORs and SORs lagged as money market rates adjusted to the expected FED hike in December 2017.
• The 3M US Libor increased by nearly 9 bps, indicating a potential move into the 1.50% zone by December.
• SORs maintained a "higher lows" repricing profile, supported by the SGD NEER's resilience and the discount in FX swaps.
• The SGS supply concluded in 2017, with the next auction scheduled for 29 January 2018.

SGD NEER and FX Swaps

• SGD NEER fluctuated within a narrow range of +0.98% to +1.22% above the mid-point in November.
• The absence of material price changes led to a drop in the 1M implied volatility of USDSGD to its lowest since September 2014.
• The 1M risk reversal was priced for resilience, which supports the stability of SORs and the FX swap discount.

Domestic Liquidity Management

• The average amount of MAS bills auctioned in November was SGD 3.5 billion, in line with October.
• Demand for bills remained stable, with a 2 times coverage ratio, indicating a historical comfort level.
• Liquidity management is expected to remain stable in 2018, with a potential shift to a less restrictive regime compared to 2017.
• The SG vs. US yield discount is expected to deepen due to the historical pass-through profile and the ongoing FED hike cycle.

USDSGD Cross Currency Basis

• The basis curve showed little change for tenors less than 5 years, with the belly being the relatively cheaper region.
• The illiquid back end tenors shifted lower toward their year-to-date averages.
• Deal flows are expected to taper off in December, leading to poorer price discovery in the SGD basis market.
• The 5Y USDSGD basis is likely to remain stable throughout 2017, given the short-lived episodes of risk aversion.

Rate Views and Forecasts

• 3M USD Libor is forecasted to rise to 1.65% in Q4 2017, 1.90% in Q1 2018, and 2.15% in Q2-Q3 2018.
• 3M SOR is expected to increase gradually, with a forecast of 1.30% in Q4 2017, 1.40% in Q1 2018, and 1.50% in Q2-Q3 2018.
• 3M SIBOR is forecasted to rise to 1.40% in Q4 2017, 1.50% in Q1 2018, and 1.70% in Q2-Q3 2018.
• 10Y UST is expected to increase to 2.50% in Q4 2017, 2.60% in Q1 2018, and 2.75% in Q2-Q3 2018.
• 10Y SGS is forecasted to increase to 2.35% in Q4 2017, 2.40% in Q1 2018, and 2.45% in Q2-Q3 2018.

SGS Bonds Issuance Calendar

• The next SGS bond auction is scheduled for 29 January 2018 for a 5-year bond.
• A 30-year bond is set for 26 April 2018, and a 20-year bond is planned for 27 June 2018.
• The issuance calendar continues through September 2018, with various tenors including 2Y, 7Y, and 15Y.

Key Information

Yield Curve Dynamics

• The yield curve flattened significantly, raising concerns about risk aversion.
• The flattening is attributed to the ongoing FED rate hike cycle, rather than a recession signal.
• The UST curve's flattening is expected to continue in 2018, with a structural view of a flatter yield curve.

Market Outlook

• The SGD rates grid shows a gradual increase in yields, with the 2s10s boxspread expected to converge onto the US curve.
• The 2s10s SGS curvature is unlikely to reprice significantly steeper without strong inflation or growth catalysts.
• The SG vs. US yield discount is expected to persist due to the historical pass-through profile and inflation differentials.

Risk Premium and Deleveraging

• The likelihood of a spike in SG yields similar to 2014/15 is low due to benign growth and inflation expectations.
• The FED Balance Sheet Reduction (BSR) program has not significantly impacted US Libor repricing.
• The SGD basis curve is expected to flatten as the year draws to a close, with a lower volatility environment.

Summary

• The Singapore money market rates are influenced by the FED rate hike cycle and SGD NEER stability.
• SORs and SIBORs are expected to reprice gradually, with a focus on longer tenors.
• The SGS supply concluded in 2017, with the next auction in January 2018.
• The SGD basis curve is expected to flatten, with the belly being the most stable region.
• The 2s10s SGS boxspread is likely to converge onto the US curve in 2018, reflecting a less restrictive liquidity regime.
• The SG vs. US yield discount is expected to persist due to inflation differentials and MAS policy expectations.
• The FED BSR has not significantly impacted the US Libor repricing, with a one hike at a time approach expected.
• The SG yield curve is likely to remain flat until a catalyst for term premium repricing emerges.
• The SGD rates grid shows a gradual increase in yields, with a flatter curve expected in 2018.
• The EM flow momentum slowed in November, affecting the 5Y USDSGD basis.
• The quantum of corporate bond renewals in December is expected to be small, reducing cheapening pressure on the basis curve.

Conclusion

The Singapore financial market is in a gradual adjustment phase as it responds to the ongoing FED rate hike cycle and the historical pass-through profile of yields. The SGD NEER stability and liquidity management are key factors in maintaining the SG vs. US yield discount. The 2s10s SGS boxspread is expected to converge onto the US curve in 2018, while the SGD basis curve is likely to flatten. The risk premium is expected to remain benign, with no significant spike in yields anticipated. Overall, the market is stable and measured, with a low likelihood of abrupt changes.