Key Points
- Yields on UK, German and Japanese 30-year government debt are up by about 45 basis points, 74 basis points and 100 basis points this year.
- This is in stark contrast to Singapore, whose 30-year bond yields have declined by about 75 basis points so far this year, indicating strong investor interest.
- Analysts tell CNBC that Singapore bonds are seen as high-quality, safe haven assets, backed by a prudent fiscal policy.
Investors have dumped long-dated bonds across markets this year on mounting worries over expanding fiscal deficits and rising inflation. Singapore has defied that trend. Yields on U.K., German and Japanese 30-year government debt are up about 45 basis points, 74 basis points and 100 basis points this year, respectively, with several hitting new milestones this week. Japan’s 30-year bond yield hit a record high on Wednesday , thanks to elevated inflation, monetary tightening expectations and political uncertainty. U.K. 30-year yields hit their highest in nearly three decades on Tuesday amid fiscal concerns. Bond market performance year to date “has indeed been dismal” for developed market, “particularly UK gilts and JGB owing to their adverse local dynamics,” Winson Phoon, Head of Fixed Income at Maybank Securities told CNBC. This is in stark contrast to Singapore, whose 30-year bond yields have declined by about 75 basis points so far this year, indicating strong investor interest. Bonds yields and prices move in opposite direction — investor interest pushes up prices, depressing yields, and vice versa. Singapore government bonds are seen to be high-quality, safe-haven assets, and that’s driving their demand, said Yujun Lin, CEO of brokerage Interactive Brokers Singapore. “Investors who are concerned about a cooling global economy might find Singapore’s AAA credit rating and consistently conservative fiscal policy attractive,” he added. Singapore is only one of nine countries in the world to have a AAA credit rating from S & P, Fitch and Moody’s. In comparison, the U.S. holds a rating of AA+ from S & P and Fitch, one notch down, while Japan has a credit rating of A+ from S & P, four notches lower than Singapore. Fiscal prudence Singapore’s fiscal prudence is a “sharp contrast” to the pressures seen in many developed economies, said Tan Hiang Tat, head of credit trading at CGS International Securities Singapore. Under its constitution, Singapore is required to run a balanced budget across the term of a government, and the country currently has no net debt. “Our strong balance sheet explains why Singapore receives the top credit rating of AAA from the three leading international credit-rating agencies,” the Singapore government has stated. Given its balanced budget, the city-state does not issue bonds to fund a deficit, but for objectives including raising money to meet temporary cashflow mismatches, building its debt market and to help price private debt securities. Singapore has also managed inflation more effectively than many major economies, said Tan. The country’s latest inflation figures came in at 0.6% for July — the lowest since January 2021 . High inflation forces central banks to raise interest rates, pushing up bond yields. Singapore’s unique monetary policy, which controls the exchange rate settings of the Singapore dollar instead of using a benchmark interest rate, has been effective in managing inflation. That framework allows the Singapore dollar to appreciate in response to inflationary pressures, Tan said, and this helps control imported inflation more effectively, further supporting bond demand as real yields remain attractive. Analysts expect that the demand for Singapore government bonds will remain healthy, given its stable economic fundamentals and political environment. Maybank’s Phoon noted that bids for Singapore bonds have turned more aggressive on pricing amid ample liquidity conditions. Given strong inflows and no signs of the MAS removing excess liquidity, SGD yields have been falling sharply and could stay low for longer, he added. CGS’ Tan also said Singapore’s strong macroeconomic backdrop has attracted substantial capital inflows, as evidenced by the appreciation of the SGD. These inflows have translated into significant liquidity entering local financial markets, including the bond market. Singapore’s currency has strengthened about 5.46% against the dollar this year. SGD= 1M mountain