Singapore rates: what’s behind the negative swap spread? - ANZ
|ANZ’s Irene Cheung is of the view that larger supply of government bonds/securities is the key reason behind the negative swap spread (interest rate swap less government bond yield) at Singapore.
Key Notes:
- In our view, the key reason behind the negative swap spread is a larger supply of government bonds, Singapore Government Securities (SGS), and more importantly, Singapore Savings bonds (SSB). An elevated loan-deposit ratio does not help.
- A continued rolling of long USD/SGD forward positions, likely to sterilise FX intervention, also suggests no injection of SGD liquidity.
- The increased bond supply (especially for SSBs) will likely continue. Also, the replacement of 24-week MAS bills by 6M Treasury bills from July will widen the investor base and could lead to increased supply of T-bills over time.
- We think swap spreads could stay negative. Buy-to-hold investors who have access to FX swaps in size could consider funding short-dated bills (earning 1.90-1.95%) by 1M swap (around 1.70-1.75%).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.