More pain ahead for SREITs as make-or-break Fed meeting draws closer

Share prices will continue to retreat.

Singapore REITs are in for a rocky ride in the next few trading days, as the US Federal Reserve keeps the market on tenterhooks regarding its rate hike decision.

Analysts expect that REITs will continue to experience heightened volatility in the lead-up to the Fed’s meeting on December 15-16.

“The Fed is likely to finally begin normalising its interest rates after an unprecedented period of near zero rates over the past seven years, and we find this unsurprising, given the recent solid Oct and Nov non-farm payrolls data, while the U.S. unemployment rate stayed constant at 5%, the lowest in more than seven years,” OCBC said in a report.

OCBC added that the Fed funds futures market has priced in a 78% probability of a Fed lift-off during the next FOMC meeting, a stark increase from the 41% probability as at 30 Sep 2015. 

“We believe there may still be increased volatility ahead, even after the overhang of the Fed funds rate hike is lifted, as the attention of the market would then turn towards how aggressively the Fed would subsequently raise its benchmark rates,” OCBC said. 

Meanwhile, KGI Fraser noted that REITs will continue to retreat in coming days as fund pull out.

On the upside, though, some REITs are becoming more attractive as yield spreads spike.

“In anticipation of the rise in rates, REITs in general continued to retreat as funds pulled out. As a result, yields of REITs have been increasing, as opposed to the Singapore 10Y bond yield which has been trading lower in recent weeks. With an increasing yield spread, we think that several REITs look attractive including Croesus Retail Trust, Soilbuild REIT, Frasers Centrepoint Trust and OUE Hospitality Trust,” said KGI Fraser.